Thursday, May 8, 2014

Korea holds rate, inflation low for time being

    South Korea's central bank held its base rate steady at 2.50 percent, as expected, and said "inflation will gradually rise, although it will remain low for the time being due largely to the stability of agricultural product prices."
    Last month the Bank of Korea's (BOK) also said that inflation would gradually rise, but remain low for the time being due to a "bountiful agricultural harvest."
    The BOK, which cut its rate by 25 basis points in 2013, said the economic recovery was continuing in line with the growth trend, with exports sustaining their buoyancy.
    "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.
    Korea's headline inflation rate rose to 1.5 percent in April from 1.3 percent the previous month, mainly due to expansions in the extent of increases in service fees and industrial product prices.
    Core inflation, which excludes the prices of agricultural and petroleum products, rose to 2.3 percent from 2.1 percent.
    The BOK has forecast 2014 inflation of 2.3 percent, up from 2013's 1.3 percent.

    Earlier this week, new BOK Governor Lee-Ju-yeol said in Kazakhstan at the Asian Development Bank meeting that he would give a warning two to three months ahead of any changes to the bank's policy rate.
    Speaking to reporters, Lee said financial markets had accepted the BOK's projection of economic recovery and thus a signal of an interest rate hike.
    The situation could change "but if it goes in the direction of the outlook, it would be difficult to see a lowering of the interest rate," Lee said, adding he was confident of 4 percent growth by the end of the year.
    Korea's Gross Domestic Product expanded by 0.9 percent in the first quarter from the fourth quarter of 2013 for annual growth of 3.9 percent, up from 3.7 percent.


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