Bank of Korean Base Rate Left at 2.5%

November 14, 2013

In a statement explaining today’s sixth straight monthly policy meeting decision not to change monetary policy, officials reaffirmed that

  • South Korea’s output gap will remain negative for a considerable time going forward and
  • The negative output gap is one of a number of factors that will keep inflation low for the time being.

Exports have been lending the economy more support than domestic demand, but the latter is starting to improve.  Consumer prices rose only 0.7% in the year to October, below the target floor of 1.5% and less than 2% for the eleventh straight time. 

During the Great Recession, the base rate was cut by 325 basis points between August 2008 and February 2009 when such bottomed at 2.0%.  Five subsequent hikes between July 2010 and June 2011 raised the policy rate to 3.25%.  The 25-basis point reduction last May followed similarly sized cuts implemented in July and October of 2012. The message of today’s statement is not to expect a policy change for some time longer.

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



Comments are closed.