News Column

Bank Of Korea Maintains Benchmark At 2.50%

May 8, 2014

SEOUL (Alliance News) - The Bank of Korea's monetary policy board on Friday decided to hold the nation's benchmark interest rate at 2.50% - unchanged for the 12th straight month and in line with expectations.

The BoK had trimmed rates by 25 basis points in May, from 2.75% to 2.50% after six months of holding steady.

"The global economy will sustain its modest recovery going forward, centering around advanced economies, but judges that the possibility exists of its being affected by the changes in global financial market conditions stemming from the shift in the US Federal Reserve's monetary policy stance, by the weakening of economic growth in some emerging market countries, and by geopolitical risks in Eastern Europe," the bank said.

Inflation remained comfortably manageable in April, allowing the central bank to hold fire on any movement - although it touched an eight-month high.

Consumer prices were up 1.5% on year and 0.1% on month in April. The annual figure exceeded forecasts for 1.4% and was up from 1.3% in March.

Core inflation, which strips out the volatile costs of food, jumped 2.3% on year - in line with forecasts and up from 2.1% in the previous month.

"The committee forecasts that inflation will gradually rise, although it will remain low for the time being due largely to the stability of agricultural product prices," the bank said.

The Bank of Korea continues to expect inflation to rise 2.3% for all of 2014, although the central bank for now has maintained its official target band at 2.5 to 3.5%.

The low inflation leaves the central bank room to maneuver in terms of additional easing - although recent data has been encouraging.

"The committee appraises the economic recovery to have continued in line with the trend of growth, as exports have sustained their buoyancy. The domestic economy will maintain a negative output gap for the time being going forward, although it forecasts that the gap will gradually narrow," the bank said.

Also, South Korea saw a merchandise trade surplus of USD4.46 billion in April, remaining in the black for the 27th consecutive month.

Exports climbed 9.0% on year to USD50.31 billion after rising 5.2% to USD49.76 billion in March. Imports were up 5.0% on year to USD45.85 billion after gaining 3.6% on year to USD45.57 billion in the previous month.

Finally, industrial production in South Korea gained a seasonally adjusted 0.9% on month in March - in line with expectations following the downwardly revised 1.9% contraction in February (originally -1.8%) and the 0.1% fall in January.

On a yearly basis, industrial production was up 2.7%

"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 bank said.

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Source: Alliance News

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