Bank of Korea Cuts the Base Rate to 2.50%


The Monetary Policy Committee of the Bank of Korea decided on May 9th to lower the Base Rate by 25 basis points from 2.75 percent to 2.50 percent.

Excerpt from the statement by The Bank of Korea:

The Committee expects the global economy to continue its modest recovery going forward, but judges that the downside risks to growth remain considerable due chiefly to uncertainties related for instance to the sluggishness of economic activity in the euro area and to the implementations of fiscal consolidation in major countries.

In Korea, exports have maintained their trend of recovery, albeit at a modest pace, but the Committee appraises economic growth to have remained weak, with indicators related to domestic demand alternating between improvement and worsening. Going forward there is no change to the Committee’s forecast that the domestic economy will show a negative output gap for a considerable time, due mostly to the slow recovery of the global economy, to the influence of Japanese yen weakening, and to the geopolitical risk in Korea.
 
Consumer price inflation recorded 1.2% in April, a level similar to that in the previous month (of 1.3%). Core inflation excluding the prices of agricultural and petroleum products was 1.4%, also similar to its March level of 1.5%. The Committee forecasts that inflation will remain low for the time being, provided there are no occurrences of exceptional factors on the supply side. As for housing prices, the downtrend of those in Seoul and its surrounding areas slowed as transactions increased, and those in the rest of the country continued on their moderate uptrend.
 
In the financial markets, stock prices and the exchange rate have fluctuated substantially under the influence chiefly of concerns about geopolitical risk in Korea and about worsening corporate performances, and the consequent outflows of foreigner stock investment funds. 
 
Looking ahead, the Committee will closely monitor the effects of the Base Rate cut and the economic policies of the government including the supplementary budget, strive to improve the sentiments of economic agents and lower inflation expectations, and conduct monetary policy so as to keep consumer price inflation within the inflation target range over a medium-term horizon while ensuring that the growth potential is not eroded due to the continuation of slow growth.
 

The Bank of Korea | Joana Taborda | joana.taborda@tradingeconomics.com
5/9/2013 8:59:32 AM