Korea Monetary Policy

Korea

Korea: Bank of Korea holds base rate at 2.00% for the second consecutive month

December 11, 2014

At its 11 December monetary policy meeting, the Bank of Korea (BoK) decided to keep the base rate steady at 2.00%, which was in line with market expectations. The Bank’s decision was unanimous and marked the second consecutive month in which the rate was kept unchanged—the Bank cut its rate twice earlier this year.

In its accompanying statement, the BoK pointed out that it expects the global economy to continue expanding at a moderate pace on the back of solid economic growth in the United States. The Euro area’s economy is projected to continue to struggle, while weaknesses in some key emerging market countries and ongoing geopolitical tensions in Eastern Europe are likely to negatively impact global growth. On the domestic front, the Bank pointed out that exports have maintained moderate performance, while consumption and investment growth have been mild amid weak economic sentiment. Mirroring previous statements, the Bank acknowledged that employment growth continues to be driven primarily by a higher number of workers in services, as well as gains in the labor market among workers aged 50 and over.

The Bank also commented that, “the Korean won has continued its depreciation against the U.S. dollar and its appreciation against the Japanese yen, in line with the strength of the dollar globally and the weakness of the yen.”

Regarding price developments, the BoK stated that annual inflation declined from 1.2% in October to 1.0% in November, mainly due to lower global oil prices and a slowdown in the rates of increase in domestic industrial prices. The Bank also mentioned that, “looking ahead, the Committee forecasts that inflation will gradually rise, after remaining at a low level for a considerable time influenced by declines in international oil prices.” In addition, prices are expected to rise in 2015 partially due to the recently-approved hike in tobacco taxes, which will be effective in January of next year.

Finally, the Bank pointed out that the Committee, “will closely monitor external risk factors such as shifts in major countries’ monetary policies, as well as the trends of household debt and of capital flows.”

FocusEconomics Consensus Forecast panelists expect the base rate to end 2015 at 2.02%. In 2016, panelists see the policy rate ending the year at 2.25%.


Author:, Economist

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Korea Monetary Policy December 2014

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


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