Third Rate Increase in South Korea

January 12, 2011

Political tensions had persuaded the Bank of Korea’s Monetary Policy Committee not to raise interest rates in December as it had done in November and July, and analysts were anticipating a similar decision this month.  Instead, a third increase of 25 basis points has been implemented in the key rate to 2.75%.  A statement from the central bank predicts on-trend growth in domestic demand, buoyant exports, persistent inflation and rising expected inflation because of elevated commodity prices and the robust growth of GDP.  Equally important in today’s decision, geopolitical tensions are expected to ease.  Consumer price inflation accelerated to 3.5% in December from 3.3% in November and 2.8% in the year to December 2009.  Three rate cuts were implemented in a span of six months during the global recession, 100 bps in August 2008, 175 bps in December 2008 and 50 bps to 2.0% in February 2009, where the key rate remained until July of 2010.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.

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