Thursday, August 11, 2011

South Korea Central Bank Holds Interest Rate at 3.25%

The Bank of Korea held its 7-day repurchase rate unchanged at 3.25% as the turmoil in global financial markets delayed the Bank's normalization of monetary policy settings.  The Bank of Korea said: "while emerging market economies have shown favorable performances, the recoveries in major advanced economies including the US have exhibited signs of weakening. Going forward, the Committee forecasts that the global economy will keep up its pace of recovery; nevertheless, the Committee recognizes the possibility of such factors as the potential for continuing economic slowdown in major countries, the spread of sovereign debt problems in Europe, and international financial market unrest posing downside risks to the global economy."

At its July meeting this year the Bank of Korea also held the interest rate unchanged at 3.25%, after increasing the 7-day repurchase rate by 25 basis points to 3.25% at its June meeting.  South Korea reported annual consumer price inflation of 4.7% in July (core inflation of 3.8%), up from 4.4% in June, 4.1% in May, and  4.2% in April, and currently above the Bank's inflation target of 2%-4% through 2012.  On inflation the Bank said it "expects the high level of inflation to continue in the coming months, driven largely by demand-side pressures resulting from the underlying uptrend in economic activity and by inflation expectations."   The South Korean Won last traded around 1,080 against the US dollar.


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