Wednesday, April 9, 2014

Korea holds rate, repeats good harvest keeps inflation low

    South Korea's central bank maintained its base rate at 2.50 percent, as expected, and reiterated that inflation will gradually rise but remain low for the time being due to "a bountiful agricultural harvest."
    The Bank of Korea (BOK), which cut its rate by 25 basis points in 2013, also said the country's economic recovery was continuing, helped by exports as domestic demand had slumped temporarily.
    The BOK said the global economy was forecast to sustain its modest recovery though it could be affected by changes in global financial market conditions from the shift in the U.S. Federal Reserve's monetary policy stance and by weakening growth in emerging market countries.
    Korea's headline inflation rose to 1.3 percent in March from 1.0 percent in February, mainly due to higher service fees and livestock product prices. Core inflation, which excludes the cost of agricultural products and petroleum products, rose to 2.1 percent in March from 1.7 percent.
    The BOK has forecast 2014 inflation of 2.3 percent, up from 2013's 1.3 percent.
    It was the first meeting by the BOK's Monetary Policy Committee after Lee Ju Yeol took over as governor from Kim Choong-soo, whose term ended March 31.

    The central bank, which targets inflation in a range of 2.5 to 3.5 percent, said it would conduct monetary policy so as to keep consumer price inflation within the target while supporting the continued recovery of economic growth.
    South Korea's Gross Domestic Product expanded by 0.9 percent in the fourth quarter from the third quarter for annual growth of 3.7 percent, up from 3.4 percent in the previous quarter.
    "In Korea indicators related to domestic demand have slumped temporarily, but as exports have shown buoyancy the Committee appraises the economic recovery to have continued in line with the trend of growth," the BOK said.
    It added that the economy would maintain a negative output gap for the time being though that gap will gradually narrow.
    In January the BOK forecast 2014 economic growth of 3.8 percent, up from 2013's 2.8 percent, and 4.0 percent in 2015.
    Last month the BOK also said inflation was expected to remain low for the time being due to a good agricultural harvest.


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