Bank of Korea Monetary Policy Stays on Hold

April 10, 2014

After five 25-basis point increases in South Korea’s seven-day repo rate between June 2010 and June 2011, such was cut 25 basis points in July 2012, October 2012 and, most recently, May 2013.  Policy has been on hold for the past eleven months at a rate level of 2.5%, but strengthening economic recovery and a diminishing output gap suggest that the next rate change will be upward.  A released statement today reaffirms that this will not happen soon, with CPI inflation of 1.3% in March still well below the Bank of Korea’s target corridor of 2.5-3.5%.  This was the first meeting presided over by the new governor, and he is believed to be more predisposed to starting to tighten before end-2014 than his predecessor.  Total inflation is at a 7-month high.  Core inflation lies above total inflation at 2.1%.  Both are climbing.  Real growth has accelerated, and the BOK just revised estimated 2014 growth up slightly to a respectable 4.0%.  Officials are prepared to raise their key interest rate based on progress in reducing economic slack even when inflation, a lagging indicator, is still comparatively low.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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