Wednesday, January 8, 2014

Korea holds rate steady, sees recovery, higher inflation

    South Korea's central bank held its base rate steady at 2.5 percent, as expected, and maintained its recent view that the country's economic recovery is continuing in line with its growth trend while exports and consumption have continued to improve.
    The Bank of Korea (BOK), which cut its rate by 25 basis points in 2013, also said it expects inflation to gradually rise but remain low for the time being, largely due to stable international agricultural prices.
    Korea's headline inflation rate eased to 1.1 percent in December from 1.2 percent in November for an average rate of 1.3 percent for 2013, down from 2.2 percent in 2012.
    The BOK targets annual inflation of 2.5-3.5 percent and in October forecast 2013 inflation of 1.2 percent and 2.5 percent inflation in 2014.
     Last month the BOK said it expects inflation to rise in 2014 as the domestic economy improves.
    Korea's Gross Domestic Product rose by 1.1 percent in the third quarter from the second quarter for annual growth of 3.3 percent, up from a 2.3 percent growth rate in the second quarter and 1.5 percent in the first quarter.

    "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 BOK said.
    The central bank said the global economy will sustain its modest recovery going forward though it added that this could be affected by changes in global financial markets from the U.S. Federal Reserve's tapering of quantitative easing.
     "Looking ahead, while paying close attention to developments in and the influences of external risk factors arising from shifts in major countries' monetary policies, 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 BOK said.


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