News Column

Bank Of Korea: No Change For Benchmark At 2.50%

June 11, 2014

SEOUL (Alliance News) - The Bank of Korea's monetary policy board on Thursday maintained the nation's benchmark interest rate at 2.50% - unchanged for the 13th 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 committee considers that the trend of economic recovery in the US has been sustained and the sluggishness of economic activities in the euro area appears to have continued to ease, while economic growth trends in some emerging market countries have weakened somewhat. The Committee forecasts that the global economy will sustain its modest recovery going forward," the bank said.

Inflation remained comfortably manageable in April, allowing the central bank to hold fire on any movement - although it touched a 19-month high.

Consumer prices were up 1.7% on year in May, while core CPI slowed to 2.2%.

In addition, export prices were down 1.6% on month and 8.1% on year in May, while import prices tumbled 1.7% on month and 6.8% on year.

"The committee forecasts that inflation will gradually rise, although it will remain low for the time being. Regarding the housing market, the uptrends of sales and leasehold deposit prices in both Seoul and its surrounding areas and in the rest of the country slowed," 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 as recent economic data has been encouraging - prompting expectations of a rate hike perhaps as early as next month.

"The committee expects that 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.

On the data front, South Korea's gross domestic product was up a seasonally adjusted 0.9% on quarter in the first quarter of 2014, following the 0.9% growth in the fourth quarter of 2013.

On a yearly basis, GDP expanded 3.9% following the 3.7% jump in Q4.

Also, industrial production in South Korea was up a seasonally adjusted 0.1% on month in April - topping forecasts for a flat reading following the 0.9% increase in March.

On a yearly basis, industrial output climbed 2.4% - beating forecasts for 2.3% but down from the downwardly revised 2.6% gain in the previous month (originally 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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