Korea: Central Bank cuts rates for the first time in seven months
May 9, 2013
At its 9 May monetary policy meeting, the Bank of Korea (BoK) cut the Base Rate by 25 basis points to 2.50%. The move represented the first rate cut in seven months and was not expected by markets, which saw rates remaining unchanged this month, in spite of growing pressures from the government for a looser monetary policy, a situation that triggered concerns regarding the Central Bank's independence.
In the accompanying statement, the Bank highlighted that it expects the modest global recovery to be sustained but noted that the sluggishness of economic activity in the Euro Area and fiscal consolidation in major countries still pose a risk to growth.
Domestically, the committee acknowledged weak growth, "with indicators related to domestic demand alternating between improvement and worsening". Regarding price developments, the Bank expects inflation to remain relatively low, provided there is no occurrence of exceptional factors on the supply side.
The Central Bank recently revised its outlook and now expects inflation to reach 2.3% this year and 2.8% in 2014. For 2013, panellists expect the monetary policy rate to end the year at 2.67%. For 2014, the panel expects the policy rate to end the year at 3.15%.