Wednesday, March 12, 2014

Korea holds rate, inflation to remain low on good harvest

    South Korea's central bank held its base rate steady at 2.50 percent, as widely expected, saying inflation should remain low for the time being due to a good agricultural harvest and the economic recovery was continuing in line with the growth trend.
    The Bank of Korea (BOK), which cut its rate by 25 basis points in 2013, said it was paying close attention to external risk factors, such as shifts in major countries' monetary policies and geopolitical risks in Eastern Europe.
    But the BOK still expects the global economy "will sustain its modest recovery going forward" though it could be affected by changes in financial conditions from the U.S. Federal Reserve's tapering of quantitative easing and weaker growth in some emerging market countries.
    South Korea's Gross Domestic Product expanded by 0.9 percent in the fourth quarter of last year from the third quarter for annual growth of 3.9 percent, up from 3.3 percent. In January the BOK forecast Korea's economy would grow by 3.8 percent this year and 4.0 percent in 2015.
    Inflation eased to 1.0 percent in February from January's 1.1 percent but the central bank expects it to gradually rise and has forecast average inflation of 2.3 percent this year, up from 2013's average 1.3 percent, rising further to 2.8 percent in 2015.  The BOK targets inflation in a range of 2.5-3.5 percent.

    Earlier this month, BOK Governor Kim Choong-soo, whose term ends March 31, said he expected inflation of 2.8 percent in the second half of this year. Lee Ju Yeol, a BOK veteran, has been nominated as the governor.
    The BOK said the country's exports were continuing to rise while domestic demand was sluggish.
    "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, reiterating a statement it has issued in recent months.



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