No Change in South Korean Monetary Policy

May 10, 2012

The Bank of Korea once again retained a 3.25% Base Rate level.  From a Great Recession low of 2.0% maintained from February 2009 until July 2010, five increases of 25 basis points each were enacted but none since June of 2011.  Both core and headline inflation eased in April to 1.6% and 2.5%, respectively.  The Bank of Korea’s CPI target midpoint is 3.0%, so inflation for now is benign.  However, the policy committee at the bank “recognizes the presence of potentially destabilizing factors, such as the ongoing high inflation expectations and the geopolitical risks in the Middle East.”  Downside risks to a recovery of domestic demand persist such as Europe’s sovereign debt problems, but officials are hopeful that “the domestic economic growth rate will gradually return to its long-term trend going forward.”  There seems to be no urgency to move away from the current 11-month-old pause in monetary policy.  The 3.25% Base Rate remains two whole percentage points below its pre-Great Recession peak.

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



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