Korea keeps base rate at 1½%, expects oil prices to keep inflation low

By Angela McDaniels

Tacoma, Wash., Sept. 11 – The Bank of Korea’s monetary policy board decided at a meeting on Friday to keep the base interest rate unchanged at 1½%, according to a bank policy statement.

The board forecasts that the global economy will maintain its recovery going forward, albeit at a moderate pace, but judges that the recovery might be affected by heightened international financial market volatility due to the instabilities in the Chinese financial and foreign exchange markets, a shift in the U.S. Federal Reserve’s monetary policy and the weakening of economic growth in emerging market countries.

Looking at the Korean economy, domestic demand activities have continued to recover, but the trend of declining exports has persisted while the improvement in economic agents’ sentiments has been inadequate, in the board’s view. The board forecasts that the domestic economy will show a trend of recovery going forward, but it believes the uncertainties surrounding the growth path have increased in view of external economic conditions.

Despite declines in petroleum product prices, consumer price inflation was 0.7% in August, the same as in July, in line mainly with increased prices of other industrial products. Core inflation excluding agricultural and petroleum products rose slightly to 2.1% from 2.0% in July.

Looking ahead, the board forecasts that inflation will continue at a low level, due mainly to the effects of low oil prices.

In the domestic financial markets, stock prices have fallen and the Korean won has depreciated against both the dollar and the Japanese yen as securities investment funds of foreigners have flowed out due to factors such as instabilities in the Chinese financial and foreign exchange markets, the board said, and long-term market interest rates have fallen.

As previously reported, the bank lowered the rate to 1½% from 1¾% in June and to 1¾% from 2% in March.

© 2015 Prospect News.
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