Bank of Korea: Split Vote for No Policy Change this Time

February 14, 2013

The seven-day repo rate was left at 2.75% for a fourth consecutive time as expected, but the decision not to ease was not take unanimously.  The interest rate benchmark was earlier cut last July and October — each time by 25 basis points — and those cuts came after a series of four rate increases of similar size squeezed between June 2010 and June 2011.  In the Great recession, the rate was slashed to 2.0% from 5.75%. 

Korean officials face uncertainties.  One worry concerns a possible adverse effect on exports from the yen’s decline.  Another is this week’s North Korean nuclear bomb test.  South Korean headline and core inflation stand currently at 1.5% and 1.2% versus a 2-4% target range.  Like so many other economies, low inflation has not promoted more robust economic growth.  Officials released a statement that declared, “the Committee anticipates that the negative output gap in the domestic economy will persist for a considerable time” and observes “stock prices have fallen and the Korean won has depreciated against the US dollar, due mostly to outflows of foreigners’ securities investment funds.”

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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