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Bank of Korea expects inflation to stay low, leaves base rate at 2½%
By Angela McDaniels
Tacoma, Wash., May 12 - The Bank of Korea's monetary policy committee decided to maintain the base interest rate at 2½% at its meeting on Friday.
The committee forecasts that the global economy will sustain its modest recovery going forward, but it does not rule out changes in global financial market conditions stemming from the shift in the U.S. Federal Reserve's monetary policy stance, by the weakening of economic growth in some emerging market countries and by geopolitical risks in Eastern Europe.
In South Korea, the economic recovery appears to have continued in line with the trend of growth, according to the committee. The committee expects that the domestic economy will maintain a negative output gap for the time being going forward, although it forecasts that the gap will gradually narrow.
In the Korean financial markets, stock prices have fallen considerably under the influence of geopolitical risks in Eastern Europe, among other factors; the Korean won has appreciated, and long-term market interest rates have fluctuated within a narrow range, according to the committee.
Consumer price inflation in South Korea rose to 1.5% in April from 1.3% in March. The committee attributed the increase mainly to expansions in the extents of increase in service fees and in industrial product prices. Core inflation excluding the prices of agricultural and petroleum products rose to 2.3% in April from 2.1% in March.
The committee forecasts that inflation will gradually rise, although it expects inflation to remain low for the time being due largely to the stability of agricultural product prices.
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