Bank of Korea Leaves Key Interest Rate Unchanged but Monitoring Impact of Won Appreciation against Yen

January 8, 2014

South Korea’s seven-day repo rate has been 2.5% since the last of three 25-basis point cuts between July 2012 and May 2013.  The rate previously was hiked via five moves of 25 bps from 2.0% prior to June 2010 to 3.25% a year later.

Inflation of 1.2% on-year as of November continues to lie below the Bank of Korea’s 1.5-3.5% target range.  A statement from officials predicts a continuing negative output gap for the time being, albeit one that should narrow gradually.  Inflation likewise should remain low for the time being as well.  Economic growth is decent enough, and exports remain supportive so far.  But in a reference to Japan’s weak yen policy, which has seen the won climb some 19% versus that currency over the past year, the final paragraph reads

While paying close attention to developments in and the influences of external risk factors arising from shifts in major countries’ monetary policies, 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 continued recovery of economic growth.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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