Korea lowers base rate to 1½%, cites expansion in downside risks

By Marisa Wong

Madison, Wis., June 11 – The Bank of Korea’s Monetary Policy committee decided at a meeting on Thursday to lower the base interest rate by 25 basis points to 1½%, according to a bank policy statement.

The bank last lowered the rate by 25 bps to 1¾% from 2% in March.

Looking at the Korean economy, the committee noted that the trend of decline in exports has accelerated and that consumption, which had been showing a recovery, appears to have contracted since the MERS outbreak.

On the employment front, the unemployment rate has risen due mainly to an expansion in job search activities, but the employment-to-population ratio has also increased as the number of persons employed has grown, the bank reported.

The committee said it believes the downside risks to the domestic growth path forecast in April have expanded, mainly because of the sluggishness of exports and impacts of the MERS outbreak.

Consumer price inflation rose slightly to 0.5% in May from 0.4% the month before, due mainly to increases in prices of agricultural, livestock and fisheries products. Meanwhile, core inflation excluding agricultural and petroleum product prices also rose slightly to 2.1%, from 2.0% in April.

Looking ahead, the committee forecasts that inflation will continue at a low level, due mainly to the effects of the low oil prices.

In the domestic financial markets, influenced mostly by strengthened expectations of a policy rate hike by the Federal Reserve, stock prices have fallen and the Korean won has depreciated against the dollar. The won has fluctuated within a certain range against the Japanese yen. Long-term market interest rates have fallen back, after having risen in response to interest rate movements in major countries and to domestic economic indicators, the bank said.

The committee is aiming to maintain price stability over a medium-term horizon and pay greater attention to financial stability.

The committee said it will closely monitor the trend of increase in household debt and external risk factors such as shifts in major countries’ monetary policies, as well as the trends of capital flows.

© 2015 Prospect News.
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