Korea maintains base rate at 1½%; inflation unchanged from June at 0.7%

By Tali Rackner

Norfolk, Va., Aug. 13 – 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, exports have continued their trend of decline but consumption and the sentiments of economic agents, after having contracted due mainly to the shock from the MERS outbreak, appear to have improved.

On the employment front, the employment-to-population ratio in July maintained the same level as that during July of last year, but the trend of increase in the number of persons employed slowed and, due mainly to an expansion in job search activities, the unemployment rate rose compared to that in July last year, the bank reported.

The committee said it believes the domestic economy will show a trend of recovery going forward, owing chiefly to the expansionary macroeconomic policies and to the ending of the MERS outbreak, but judges the uncertainties surrounding the growth path to be high.

Consumer price inflation was 0.7% in July, the same as in June, in line mainly with expansions in the extents of increase in service prices. Core inflation, excluding agricultural and petroleum product prices, was 2%, also the same as in June.

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 expectations of a policy rate hike by the U.S. Federal Reserve and by the devaluation of the Chinese yuan, stock prices have fallen and the Korean won has depreciated sharply against both the U.S. dollar and the Japanese yen.

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

The committee said it will closely monitor the trend of increase in household debt and external risk factors such as any shift in the U.S. Federal Reserve’s monetary policy and the financial instabilities in some emerging economies, as well as the trends of capital flows.

© 2015 Prospect News.
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