Thursday, September 13, 2012

South Korea keeps rate steady despite weak outlook

    The central bank of South Korea left its base rate unchanged at 3.0 percent despite its weak outlook for the domestic and global economy. 
    The Bank of Korea (BOK), which surprised markets by cutting its base rate in July, had been expected to cut rates further in light of low inflation and weakening growth. However, the South Korean government has announced increased spending and tax cuts.
    The BOK said it "expects the pace of global economic recovery to be very modest going forward and judges the downside risks to growth to be large, owing chiefly to the spillover of the euro area fiscal crises to the real economy and to the possibility of the so-called fiscal cliff materializing in the U.S.," the BOK said following a meeting of its Monetary Policy Committee.

    South Korea's economy slowed in the second quarter to an annual growth rate of 2.3 percent from 2.8 percent as the country's exporters suffer from the global slowdown.
    "The Committee anticipates that the negative output gap in the domestic economy will be sustained for a considerable time going forward, due mostly to the prolongation of the euro area fiscal crises and the sluggishness of the global economy," the BOK said.
     Consumer prices rose by an annual rate of 1.2 percent in August, down from 1.5 percent in July, but the BOK said it expects inflation to pick up due to damage from a recent typhoon and higher oil and grain prices.
    However, it still expects inflation to remain below the bank's 3.0 percent midpoint target.


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