Korea Monetary Policy

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Korea: Bank of Korea keeps base rate unchanged at 2.00% in November

November 13, 2014

At its 13 November monetary policy meeting, the Bank of Korea (BoK) decided to keep the base rate unchanged at 2.00%, which was in line with market expectations. The Bank’s decision, which was the first unanimous vote since June, came after a 25 basis-point cut at the October monetary meeting.

In its accompanying statement, the BoK pointed out that it expects the global economy to continue growing at a moderate pace, mainly driven by solid economic growth in the United States. The Euro area’s economy is expected to remain subdued, while sluggishness 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 steady growth, domestic demand indicators have been oscillating between improving and worsening, and economic sentiment has been weak since the Sewol ferry disaster. Mirroring previous statements, the Bank again recognized 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 depreciated considerably against the US dollar but appreciated significantly against the Japanese yen, in line with the US dollar’s strength globally and with the Japanese yen’s weakness due mainly to the expansion of the Bank of Japan’s quantitative and qualitative monetary easing.” The Bank also acknowledged that the recent weakening of the Japanese yen could hamper Korean exports going forward; however, it also pointed out that Japan’s new stimulus efforts could not be addressed by South Korean interest rates.

Regarding price developments, the BoK stated that inflation, which came in at 1.2% year-on-year in October, will remain subdued for the rest of 2014, but that it will gradually increase in 2015. In the housing market, sales and leasehold deposit prices continued their upward trends.

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 2014 at 2.02%. In 2015, panelists see the policy rate ending the year at 2.19%.


Author:, Economist

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Korea Monetary Policy November 2014

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


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