Korea leaves base rate at 2%; consumer price inflation falls to 1%

By Jennifer Chiou

New York, Dec. 11 – The Bank of Korea’s Monetary Policy committee decided to maintain the base interest rate at 2% at its meeting on Thursday. The rate was cut from 2¼% in October.

According to a bank policy statement, the committee said that the trend of economic recovery in the United States has become more evident, the sluggishness of economic activities in the euro area has continued while trends of economic growth in emerging market countries have differed from country to country.

Consumer price inflation fell to 1% in November from 1.2% the month before due mainly to declines in petroleum product prices and to slowdowns in the rates of industrial product price increase, the statement said.

Core inflation excluding agricultural and petroleum product prices fell to 1.6% from 1.8% in October, the committee noted.

Looking ahead, it forecasts that inflation will gradually rise, after remaining at a low level for a considerable time influenced for example by declines in international oil prices.

The committee also said it forecasts that the global economy will sustain its modest recovery going forward, centering around the United States, but judges that the possibility exists of its being affected by changes in the monetary policies of major countries, by the prolongation of economic sluggishness in the euro area, by the weakening of economic growth in some emerging market countries and by geopolitical risks.

In Korea, while exports have maintained generally favorable movements, the committee judges that the recoveries of consumption and facilities investment have been inadequate and that the sentiments of economic agents remain weak, the statement added.

In the domestic financial markets, the Korean won has continued its depreciation against the dollar and its appreciation against the Japanese yen, in line with the strength of the dollar globally and the weakness of the yen.

Looking ahead, while supporting the recovery of economic growth, the committee will conduct its monetary policy so as to maintain price stability over a medium-term horizon and pay attention to financial stability, the release added.

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