Bank of Korea

September 13, 2012

Analysts didn’t get the 25-basis point Korean interest rate cut that was expected, but such a move in the future seemingly remains in play.  A statement on the Bank of Korea web site is sufficiently dovish to have justified an easing now.  Commenting on growth elsewhere, “the Committee expects the pace of global economic recovery to be very modest going forward and judges the downside risks to growth to be large.”  Growth in South Korea is called weak, with exports in a downtrend and domestic demand alternately running hot and cold.  An output gap dampening inflation should persist for a “considerable time,” and the won has been relative stable.  Higher inflation than the present 1.2% on-year pace is anticipated due in part to commodity trends, but the pace will remain in the lower half of its 2-4% target range “for the time being.”

From a post-Great Recession level of 2.0%, five 25-bp rate hikes were implemented from July 2010 to June 2011.  That streak was broken in July of this year with a 25-bp reduction, but this was the second consecutive meeting to pass without officials undertaking a second follow-up easing.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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