Bank of Korea keeps base rate at 2½% as inflation remains low

By Toni Weeks

San Luis Obispo, Calif., Nov. 14 - The Bank of Korea's Monetary Policy Committee decided at its meeting on Thursday to keep the base interest rate at 2½%, according to a bank statement.

The bank said that consumer price inflation fell to 0.7% in October from 0.8% in September due mainly to the increasing decline in the prices of agricultural and petroleum products. Core inflation, which excludes those categories, was identical to the 1.6% recorded the previous month. The committee said it expected inflation to remain low for the time being.

According to the bank, the domestic financial markets have moved mainly in response to U.S. fiscal negotiations and the delay in tapering of the U.S. Federal Reserve's bond-buying program. Stock prices have fallen after having risen substantially, in line with shifts in the flows of foreigners' stock investments. The Korean won has recently depreciated following a sustained trend of appreciation that was due to the current account surplus.

Although indicators related to domestic demand in Korea decreased, exports have sustained their buoyancy, the committee said, and it therefore deems economic recovery to have continued in line with the trend of growth.

The bank considers that economic recovery in the United States has continued despite the temporary slowdowns in improvement of some economic indicators. It also said it considered that the sluggishness of economic activities in the euro area are still continuing to ease, although weakly, while economic growth in emerging market countries, especially China, continue to show signs of recovering. Going forward, the committee said it believes that the global economy will continue its modest recovery, although uncertainties surrounding the U.S. government's budget bill and increase in its debt ceiling pose downside risks to growth.

Looking ahead, the committee, while observing developments in and the influence of external risk factors, will conduct monetary policy so as to keep consumer price inflation within the inflation target range over a medium-term horizon while ensuring that growth potential is not eroded due to the continuation of slow growth.

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