Bank of Korea Eases Monetary Policy

July 12, 2012

Korean monetary authorities switched priorities today from containing inflation to preventing an undue deficiency of economic growth.  In a released statement, officials appraised “the trend of economic growth to have weakened more than originally anticipated, with the rates of growth in exports and domestic demand remaining at low levels.”  The Monetary Policy Committee anticipates “a negative output gap for a considerable time going forward” and today undertook the first reduction of the seven-day repo rate since February 2009.  The benchmark, which had been increased five times by 25 basis points each from July 2010 to June 2011, was cut back to 3.0% today from 3.25%.  Growth is hovering around 3%, and consumer prices rose 2.2% in the year to June.

Looking ahead, the Committee, while closely monitoring external risk factors and the consequent changes in financial and economic conditions at home and abroad, and also continuing its efforts to lower inflation expectations, will conduct monetary policy so as to stabilize consumer price inflation at the midpoint of the inflation target over a medium-term horizon amid continuing sound growth of the economy.

Korea thus joins other non-European central banks such as those in Brazil and China that have become sufficiently worried about the fallout of the European debt crisis that they have eased their own credit policies.

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



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