Wednesday, July 9, 2014

Korea maintains rate, to check if Sewol dents demand

    South Korea's central bank held its base rate steady at 2.50 percent, as expected, and said it was still closely watching "for the possibility of a delay in the domestic demand recovery influenced for example by the Sewol ferry accident."
    The Bank of Korea (BOK) has maintained its rate this year after cutting it by 25 basis points in 2013 and is expected to raise it rate later this year.

   The BOK issued the following statement:

"The Monetary Policy Committee of the Bank of Korea decided today to leave the Base Rate unchanged at 2.50% for the intermeeting period.

Based on currently available information the Committee considers that the trend of economic recovery in the US has been sustained and the sluggishness of economic activities in the euro area appears to have continued to ease, while trends of economic growth in emerging market countries have differed from country to country. The Committee forecasts that the global economy will sustain its modest recovery going forward, centering around advanced economies, but judges that the possibility exists of its being affected by the changes in global financial market conditions stemming from the shift in the US Federal Reserve’s monetary policy stance and by the weakening of economic growth in some emerging market countries.

In Korea, despite exports having maintained their buoyancy the Committee appraises economic growth to have slowed somewhat, as domestic demand has slackened due largely to the impacts of the Sewol ferry accident. On the employment front, the number of persons employed has shown an uptrend similar to its level of recent years, led by increases in the 50-and-above age group and in the service sector. The Committee expects that the negative output gap in the domestic economy will gradually narrow going forward, although its pace of narrowing will be moderate.

Consumer price inflation registered 1.7% in June, as in May, even despite a narrowing of the extent of decline in agricultural product prices as the decline in petroleum product prices accelerated. Core inflation excluding the prices of agricultural and petroleum products fell slightly, from 2.2% to 2.1%. The Committee forecasts that inflation will gradually rise, although inflationary pressures appear to be somewhat weaker than previously expected. Housing prices in the country excluding Seoul and its surrounding areas showed a slight upward movement, while leasehold-deposit prices both in Seoul and its surrounding areas and in the rest of the country continued their modest uptrends.

In the domestic financial markets, influenced by improvements in economic indicators in and the accommodative monetary policy stances of major countries, as well as by inflows of foreigners’ securities investment funds, stock prices have risen, long-term market interest rates have fallen, and the Korean won has appreciated.

Looking ahead, 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 recovery of economic growth. In this process it will closely monitor external risk factors such as shifts in major countries’ monetary policies, as well as the possibility of a delay in the domestic demand recovery influenced for example by the Sewol ferry accident."



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