No Change in South Korean Monetary Policy This Month

December 9, 2010

The Bank of Korea left its seven-day repo rate at 2.5%, having raised such previously only twice and by 50 basis points in all, which is less than many other central banks in Asia.  Those advances of 25 basis points each were implemented in July and November of this year.  At 2.50%, the benchmark interest rate remains less than half of its pre-recession peak of 5.25%.  Three cuts of 100 bps in August 2008, 175 bps in December 2008 and 50 bps in 2009 slashed such to a low of 2.0%.  South Korea’s recovery, in which GDP was 4.4% greater last quarter than a year earlier, is expected by central bank officials to continue in spite of external headwinds.  The won has appreciated more sharply in the past six months than other Asian currencies with the exception of the yen.  A statement released by officials today cites a sharply reduced inflation in justifying no further tightening.  Consumer price inflation in November was 3.3%, down from 4.1% in October, and was associated with a sub-2% core rate of 1.8%.  The statement also alluded to tensions with North Korea and uncertainties caused by European debt problems as further reasons for caution.  Officials are attempting to balance the needs for price stability with growth promotion, and the statement does not leave a clue regarding how much longer policy might remain on pause.

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



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