Korean Repo Rate Held at 2.0% but Maybe Not for Much Longer

December 11, 2014

The statement released by South Korean monetary officials after keeping their seven-day repo rate at 2.0% accentuates factors that might lead them to undertake further monetary relief. The central bank rate was reduced four times between November 2012 and October of this year.  The first of these cuts was the first easing since February 2010.  Only a gradual narrowing of Korea’s negative output gap is narrowing.  Recoveries in personal consumption and business investment are called inadequate, and economic sentiment is weak.  Inflation is projected to “remain at a low level for a considerable time influenced for example by declines in international oil prices.”  Headline and core inflation fell in November, the former to 1.0%, just half the medium-term objective.  Home price inflation has slowed, too.  The “prolongation of economic sluggishness in the euro area, the weakening of economic growth in some emerging market countries, geopolitical risks” and yen depreciation will depress external demand of Korean products. Many economists anticipate a rate cut in the early part of next year.

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

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