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Korea lowers base rate by 25 bps to 2%; core inflation falls to 1.9%
By Angela McDaniels
Tacoma, Wash., Oct. 15 – The Bank of Korea’s Monetary Policy committee decided to lower the base interest rate to 2% from 2¼% at its meeting on Wednesday, according to a bank policy statement.
The committee forecasts that the global economy will sustain its modest recovery going forward, but it said the recovery could be affected by the changes in global financial market conditions stemming from the shift in the U.S. Federal Reserve’s monetary policy stance, continued economic sluggishness in the euro area, the weakening of economic growth in some emerging market countries and geopolitical risks.
In Korea, exports have sustained a favorable pattern and consumption has improved somewhat, but the committee judges that facilities investment remains sluggish and that economic agents’ sentiment has only partially recovered.
In Korea, consumer price inflation fell to 1.1% in September from 1.4% in August. The committee attributed the decline mainly to a decline in petroleum product prices and to slowdowns in the rates of industrial product price increases. Core inflation excluding agricultural and petroleum product prices fell to 1.9% in September from 2.4% in August.
The committee forecasts that, after remaining low due primarily to the stability of agricultural and international oil prices, inflation will gradually rise next year. However, it expects inflationary pressures to be somewhat weaker than previously expected.
In the Korean financial markets, prices have fallen significantly, the Korean won has depreciated rapidly and long-term interest rates have fallen substantially, the committee said.
Looking ahead, the committee said it will closely monitor external risk factors such as the shift in the U.S. Federal Reserve’s monetary policy stance and the trends of household debt and of capital flows.
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