Bank of Korea Base Rate Kept at 2.0%

May 12, 2010

The Bank of Korea holds monthly interest rate policy meetings and made no change in the 2.0% base rate for a fifteenth straight time.  Three successive cuts of 100 basis points, 175 bps and 50 bps were made earlier in August 2008, December 2008 and February 2009.  South Korea is now experiencing a typically Asian robust recovery, led by exports but with solid contributions from investment and consumption as well.  Real GDP advanced at a 7.5% annualized pace last quarter and by 7.8% from the first quarter of 2009, while industrial production showed on-year growth of more than 20% in March.  The jobless rate fell to 3.8% in March from 4.8% in January, and CPI inflation accelerated from 2.3% in March to 2.6% in April.  Nevertheless, a statement from monetary officials expresses no urgency to withdraw from the present accommodative stance, citing

  1. Overseas growth risk factors from the Southern European debt crisis and a tightening of Chinese monetary policy.
  2. Expectations that CPI inflation will settle back and remain stable once the effect passes of higher farm prices due to unseasonably cold weather.
  3. Generally weak house price inflation and lagging construction-sector activity.
  4. A desire to help sustain the recovery in activity.

Like many private analysts, Korean monetary officials are concerned that the EU is treating the symptoms but not the causes of its debt crisis.  In atypically strongly critical language for one official body about another’s policy, today’s statement asserts, “No fundamental solution of government debt problems in certain Southern European countries has yet been reached.”

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.



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