Korea: Central Bank stays put for 11th consecutive meeting
April 10, 2014
At its 10 April monetary policy meeting-the first chaired by Governor Lee Ju-yeol-the Bank of Korea (BoK) decided to leave the base rate unchanged at 2.50%. This is the 11th consecutive meeting at which the BoK decided to hold its key monetary policy rate. The decision was on par with market expectations.
The Central Bank stated that recent economic data point to ongoing recovery in the global economy, buttressed mainly by more favorable economic conditions in the United States and in the Eurozone. However, the bank recognized that downside risks persist in some emerging economies. Domestically, the BoK underlined that economic growth was mainly supported by the external sector and that employment growth “continued its substantial upward trend”, led by a higher number of workers in services as well as gains in the labor market among workers aged 50 and above. Regarding price developments, the Bank stated that downside inflation pressures early this year due to lower agricultural prices are fading and that it expects inflation to rise gradually in the coming months.
In his new role, Lee Ju-yeol will need to find the balance between supporting economic growth and containing excessive household debt. Most analysts stick to the view that Governor Lee is on board with President's Park's view that rising potential growth is the economic priority and that supply-side reforms are necessary for this objective.
The majority of Consensus Forecast panelists expect the Central Bank to raise the policy rate this year, with an average forecast of 2.72%. For 2015, panelists see the policy rate ending the year at 3.22%.
Author: Ricardo Aceves, Senior Economist