Thursday, August 9, 2012

Korea holds rate, sees 'very moderate' global growth

    The Bank of Korea (BOK) held its base rate unchanged at 3.0 percent, as most economists had expected, saying the country's growth was slowing due to lackluster exports and domestic demand.

    "The Committee expects the pace of global economic recovery to be very moderate going forward as well, with the uncertainties surrounding the euro area fiscal crisis and the international financial markets persisting," the BOK said in a statement following a meeting of its Monetary Policy Committee.
     Reflecting the global slowdown and its impact on South Korean exports, the BOK cut its base rate last month, its first cut in interest rates since February 2009.
     The day after the BOK's surprising interest rate cut, the bank reduced its 2012 growth forecast to 3.0 percent from its April forecast of 3.5 percent, and its 2013 forecast to 3.8 percent from a previous 4.2 percent. In 2011 South Korea's GDP expanded by 3.6 percent.

    The bank also trimmed its consumer price inflation forecast due to lower commodity prices to 2.7 percent in 2012, down from a previous forecast of 3.2 percent. In 2011 inflation was 4.0 percent and in 2013 inflation was seen ticking up to 2.9 percent.  The BOK targets inflation of 2-4 percent.
    The BOK noted that consumer prices rose by 1.5 percent yar-on-year in July, down from 2.2 percent  in June, mainly due to stable international oil prices and favorable weather.
    "The Committee forecasts that inflation will remain at a low level for the time being, despite for instance pressures to hike public utility fees and the instability of international grain prices," the BOK said.
   The central bank's BOK Economic Sentiment Index, which reflects business and consumer sentiment, fell four points to 92 for July. Any reading below 100 means that economic sentiment in the private sector is below past averages.
    The drop in the sentiment index had lead some economists to expect the BOK to cut rates further.


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