Korea: Bank of Korea keeps base rate at 2.00% for the fourth consecutive month
February 17, 2015
At its 17 February monetary policy meeting, the Bank of Korea (BoK) decided to keep the base rate steady at 2.00%. The decision was in line with market expectations and marked the fourth consecutive month in which the rate was kept unchanged—the Bank cut its rate twice in 2014.
In its accompanying statement, the BoK stated that it expects the global economy to continue growing at a moderate pace. While the US is growing at a solid rate, recovery in the Euro area remains weak, and China is experiencing a slowdown. Changes in monetary policy among several major economies, sluggish emerging market growth, geopolitical risks, and uncertainty regarding the Greek debt situation are expected to restrain global economic growth in the near term.
On the domestic front, the Bank pointed out that export growth has slowed, while domestic demand and economic sentiment remain weak. The Bank, “expects that the domestic economy will show a modest trend of recovery going forward, but that the negative output gap will persist for a considerable time.” As a result, the Bank decided to keep the base rate stable at 2.00% to further support economic growth.
Regarding price developments, the BoK stated that annual inflation remained at December’s 0.8% in January, with lower global oil prices being offset by higher non-oil industrial products. In contrast, core inflation, which excludes agricultural and petroleum prices, registered a big jump from 1.6% in December to 2.4% in January. The Bank expects inflation to gradually rise in the second half of the year.
Author: Carl Kelly, Economist