No Change This Month in South Korean Central Bank Rate

August 12, 2010

The decision by the Bank of Korea to leave the seven-day repurchase rate at 2.25% seems to be a pause rather than an indefinite halt in efforts to return to a more normal, less accommodative monetary stance.  Officials expect the domestic economy to “continue on an upward track, even in the presence of external risk” and foresee consumer price inflation, which stood at 2.6% on year in July, edging above the 3.0% target later this year.  A statement from the authorities called policy “accommodative” and listed the priority of price stability ahead of the separate goal of sustaining sound growth.  Real GDP in Asia’s fourth biggest economy expanded 6.0% at an annualized rate last quarter and by 7.1% from 2Q09.  The quarterly pace was slower than in the first quarter, but it represented a sixth uninterrupted quarter of expansionary growth. 

From a peak of 5.25%, the key interest rate had been slashed by 100 basis points in August 2008, 175 bps in December 2008, and 50 bps to 2.0% in February 2009.  There it remained for 17 months until a 25-basis point increase announced July 9, 2010.  More restraint lies ahead.

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



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