News Column

Bank Of Korea Maintains Benchmark At 2.50%

July 9, 2014

SEOUL (Alliance News) - The Bank of Korea's monetary policy board on Thursday held the nation's benchmark interest rate at 2.50% - unchanged for the 14th straight month and in line with expectations.

The BoK had trimmed rates by 25 basis points in May 2013, from 2.75% to 2.50% after six months of holding steady.

"The committee appraises economic growth to have slowed somewhat, as domestic demand has slackened due largely to the impacts of the Sewol ferry accident," the bank said. "The Committee expects that the negative output gap in the domestic economy will gradually narrow going forward, although its pace of narrowing will be moderate."

Inflation remained comfortably manageable in June, allowing the central bank to refrain from any movement.

Consumer price inflation came in at 1.7%, unchanged from the previous month and well below the target range of 2.5 to 3.5%. The Bank of Korea continues to expect inflation to rise 2.3% for all of 2014.

In addition, export prices were down 0.2% on month and 10.6% on year in June, while import prices were flat on month and fell 8.8% on year.

"The committee forecasts that inflation will gradually rise, although inflationary pressures appear to be somewhat weaker than previously expected. Housing prices in the country excluding Seoul and its surrounding areas showed a slight upward movement," the bank said.

On the data front, South Korea's manufacturing sector continued its downturn as output and new orders weakened further - but shipments from the nation recovered in June.

The HSBC Purchasing Managers' Index fell to 48.4 in June from 49.5 in May. The PMI figure signaled the fastest rate of worsening in business conditions since August 2013.

"Looking ahead, 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 recovery of economic growth," the bank said.

Also on Thursday, the bank said that export prices in South Korea were down 0.2% on month in June, following the 1.6% decline in May.

On a yearly basis, export prices dropped 10.6% after falling 8.1% in the previous month.

Among the individual components, agricultural export prices fell 0.8% on month and 15.3% on year, while manufacturing export prices dipped 0.2% on month and 10.6% on year.

Import prices were flat on month after losing 1.7% in May, and down 8.8% on year after losing 6.8% in the previous month.

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Source: Alliance News

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