Korea Monetary Policy March 2016

Korea

Korea: Bank of Korea holds base rate at 1.50% in March

March 10, 2016

At its 10 March monetary policy meeting, the Bank of Korea (BoK) held its base rate at a record-low 1.50%, where it has been resting since July 2015. The decision met market expectations.

In its accompanying statement, the BOK stated that it expects the global economy to continue recovering, even though at a slower pace. While growth dynamics picked up in the U.S., the recovery in the Eurozone slowed and GDP growth in emerging markets, including China, decelerated. As for the Korean economy, the BoK noted that weakness persisted, mainly due to dropping exports but also because of slowing domestic demand and falling consumer and business sentiment. While the BoK projects the Korean economy to recover, at the same time it warned that, “uncertainties surrounding the growth path [were] high,” mainly due to external factors.

According to the Bank, inflation rose notably in February, mainly due to higher price for agricultural products. Nevertheless, the Bank sees inflation staying low going forward, muted by the low oil price. Adding to this, the Bank noted that domestic stock prices rose notably since February and that the Korean won regained some of its value lost against the U.S. dollar while it depreciated against the Japanese yen. Meanwhile, long-term interest rates ticked up and household indebtedness reached a record-high. Finally, the Bank emphasized its commitment to balancing economic recovery with price and financial stability. Going forward, the Bank will closely monitor external and geopolitical risks, capital flows, as well as household debt trends.

FocusEconomics Consensus Forecast panelists expect the base rate to end 2016 at 1.31%. In 2017, panelists see the policy rate ending the year at 1.38%.


Author: Teresa Kersting, Economist

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Korea Monetary Policy March 2016

Note: BoK Base Rate in %.
Source: Bank of Korea (BoK).


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