Korea: Central Bank leaves rates on hold as global slowdown threatens growth
September 8, 2011
At the monetary policy meeting held on 8 September, the Bank of Korea (BoK) kept the Base Rate unchanged at 3.25%, in a decision that was in line with market analysts' expectations. The BoK refrained from raising rates for a third consecutive meeting, after tightening the policy reins in June. At the current 3.25%, the policy rate is at its highest level since November 2008. According to analysts, external factors heavily influenced the BoK decision to keep rates unchanged. The BoK stated that slower growth in major economies, the sovereign debt crisis in Europe and volatility in financial markets add downward risks to the global outlook and increase the uncertainty regarding the growth path of the export-dependent Korean economy. Meanwhile, inflationary pressures remain strong, with inflation increasing from 4.7% in July to 5.3% in August on the back of rising prices for agricultural products. However, according to the BoK, agricultural prices are expected to stabilize in the coming months, thus easing pressure on prices going forward. In the statement accompanying the decision, the BoK reiterated that it will conduct its monetary policy with a ?greater emphasis? on ensuring price stability in the coming months. However, according to market analysts, the continued reference to external downside risks implies that the BoK will keep interest rates on hold for the rest of the year.
Author: Armando Ciccarelli, Head of Data Solutions