Korea maintains base rate at 1½%, keeps eye on situation in Greece

By Toni Weeks

San Luis Obispo, Calif., July 9 – The Bank of Korea’s Monetary Policy committee decided at a meeting on Thursday to keep the base interest rate unchanged at 1½%, according to a bank policy statement.

The bank last lowered the rate by 25 basis points from 1¾% in June.

Looking at the Korean economy, the committee noted that amid continued sluggishness in exports, consumption, under the influence of the MERS outbreak, has declined significantly, and the sentiments of economic agents have worsened.

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 domestic economy will show a trend of recovery going forward, mainly due to the expansionary macroeconomic policies and the subsiding of the MERS outbreak. Uncertainties surrounding the growth path are expected to be high, however.

Consumer price inflation rose slightly to 0.7% in June from 0.5% the month before, due mainly to increases in prices of agricultural, livestock and fisheries products and to a narrowing of the extent of decline in petroleum product prices. Meanwhile, core inflation, excluding agricultural and petroleum product prices, fell slightly to 2% from 2.1% in May.

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 the situation in Greece, stock prices have fallen, and the Korean won has depreciated against both the dollar and the yen. Long-term market interest rates have risen, in response mainly to expectations of a policy rate hike by the U.S. Federal Reserve and of an increased volume of Korean Treasury bond issuance.

The committee said it is aiming to maintain price stability over a medium-term horizon and pay attention to financial stability while working to sustain the recovery of economic growth.

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

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.