Bank of Korea Policy Unchanged

January 8, 2010

As expected, the Bank of Korea retained a record low 2.0% base rate today.  This decision ensures that Korea’s key interest rate will have been at 2.0% for at least a full year, and the interval will no doubt extend beyond February.  A statement released by monetary policymakers reiterated the intent to “maintain an accommodative monetary policy for the time being.”  GDP is again expanding, having grown at a brisk annualized pace of 13.6% in the third quarter but posting a weak increase of just 0.9% from the year-earlier quarter.  An acceleration of consumer price inflation is blamed on oil pressures and inclement weather; with the on-year CPI rise at just 2.4% in November, officials can live with this.  Policymakers continue to worry that a delay in the full-fledged recovery of major advanced economies could present a risk to the recovery trend of the Korean economy.  The statement does not mention the won, whose appreciation has helped to contain inflation.

The Bank of Korea aggressively reduced interest rates in the autumn of 2008.  As the global financial crisis was escalating, the central bank implemented two rate cuts totaling 100 basis points in October 2008 followed by reductions of 25 bps in November, 100 bps in December, and 50 bps each in January and February.  Those actions cut the benchmark by 325 basis points from 5.25% to its current 2.0%.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.


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