Bank of Korea

July 9, 2010

Bowing to the reality of a strong domestic recovery — real GDP grew in the first quarter by over 8% both from 4Q09 annualized and from 1Q09 — the Bank of Korea finally implemented a rate increase of 25 basis points in its seven-day repo rate to 2.25%.  However, in deference to slack property prices, volatile equity markets, and risks posed by Europe’s sovereign debt problems, a statement posted on the Bank of Korea web site promised to maintain a growth-supportive accommodative policy stance.  CPI inflation of 2.6% in June lies comfortably between 2% and 3%.  However, PPI inflation is at 4.6%, and demand-pull price pressures are forecast to keep building.  Exports are 32.4% greater than a year ago, labor market conditions have improved, and consumption and investment are rising steadily.  Today’s action had been predicted by only a minority of forecasters and gave the won a lift.  The statement from the Bank of Korea gave no clue about the timing of subsequent rate adjustments.

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



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