Bank of Korea keeps base rate at 3¼%, expects growth to continue

By Melissa Kory

Cleveland, July 14 - The Bank of Korea's Monetary Policy Committee left its base interest rate unchanged at 3¼% for the intermeeting period, according to a news release issued by the bank.

While emerging market economies have continued to show favorable performances, the recoveries in major advanced economies, including the United States, have exhibited signs of temporarily faltering, the bank noted. The committee forecasts that the global economy will keep up its pace of recovery going forward.

For Korea, the committee noted the economy has maintained its underlying upward trend, given that exports show robust growth and that domestic demand is increasing modestly. Labor market conditions have also remained on a track of improvement.

Going forward, the committee anticipates that the domestic economy will keep up this underlying trend, even in the presence of external risks.

Consumer price inflation rose to the 4.4% level in June due mostly to sharp rises in the prices of some agricultural and livestock products. The high level of inflation is expected to continue in the coming months, driven largely by demand-side pressures resulting from the underlying uptrend in economic activity and by inflation expectations.

Core inflation increased to the 3.7% level as the prices of processed food products and personal services continued to rise; this uptrend in core inflation is persisting.

In the financial markets, the ranges of fluctuation of price variables such as interest rates, stock prices and exchange rates have widened due mainly to the effects of external risk factors including the sovereign debt problems in Europe.

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