Bank of Korea Policy Still on Hold

April 14, 2012

The 3.25% seven-day repo rate was left unchanged after Friday’s meeting of the Monetary Policy Committee.  This was the same decision as those reached at the nine previous meetings.  From a trough of 2.0%, five increases of 25 basis points each were implemented in July 2010, November 2010, and January, March and June of 2011.  South Korean on-year CPI inflation has decelerated by half from 5.3% last August to 2.6% as of March, which lies below the mid-point of a 2-4% medium-term target range.  A statement from officials warns of some upside risks: “The Committee does however recognize the presence of potentially destabilizing factors, such as the ongoing high inflation expectations and the geopolitical risks in the Middle East.”  GDP rose 0.4% on quarter and 3.4% on year in 4Q11, and officials believe that “domestic economic growth rate will gradually return to its long-term trend going forward, although downside risks remain due mostly to the impacts of external risk factors.”

There is clearly no urgency attached to changing the current policy stance, which will be retained for some time further.  At 3.25%, the key rate is 125 basis points above its 2009 low but 200 bps below its 2008 high.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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