Bank of Korea Cuts Seven-Day Repo Rate

October 15, 2014

Citing sluggish capital investment, subdued business confidence, a later likely end to the current output gap, and thus weaker inflationary pressure than foreseen previously, the Bank of Korea released a statement explaining its reasons for cutting the key interest rate to 2.0%.  This level matches the post-Great Recession low maintained from April 2009 until a 25-bp hike in July 2010.  The statement revises projected inflation in 2014 to 1.4% from 1.9% and projected real economic growth in 2014 to 3.5% from 3.9%.  The won has been falling, and this action runs the risk of accelerating capital outflows.  Officials had also cut the interest rate benchmark by 25 basis points each in November 2012, May 2013 and, most recently, August 2014.  Today’s action was decided by a 6-1 vote with a single dissent in favor of leaving the interest rate at 2.25%.

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

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