Korea: Central Bank stays put at latest meeting
February 13, 2014
At its 13 February monetary policy meeting, the Bank of Korea (BoK) decided to keep the base rate on hold at 2.50%. This is the ninth consecutive meeting at which the Bank decided to maintain rates unchanged. The decision was in line with market expectations.
The Central Bank stated that recent indicators showed that growth in domestic demand deteriorated somewhat. However, the BoK acknowledged that the external sector maintains a strong footing and that the labor market is still robust. Nonetheless, monetary authorities underlined that a certain degree of slack in the economy will persist in the coming months, although the output gap is expected to narrow. Regarding price developments, the Central Bank stated that it expects inflation to start increasing gradually, although it will remain low in the coming months mainly due to the stabilization of global commodity prices.
Finally, the Central Bank concluded that volatility in both global and local financial markets persists but, going forward, monetary authorities will pay close attention, "to developments in and the influences of external risk factors such as shifts in major countries' monetary policies and market unrest in some emerging economies, the Committee will conduct monetary policy so as to keep consumer price inflation within the inflation target range over a medium-term horizon while supporting the continued recovery of economic growth."
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