South Korea Central Bank News

South Korea's central bank held its base rate steady at 2.50 percent, as widely expected, saying it would keep a close eye on the impact of last month's rate cut, changes in external factors and government policies to keep inflation within the bank's target.
    The Bank of Korea (BOK), which cut rates by 25 basis points last month, said it expects the global economy to sustain its modest recovery but there are still downside risks to growth from "the uncertainties related for instance to the possibility of an earlier-than-expected tapering off of US quantitative easing policy and to the implementation of fiscal consolidation in major countries."
    The BOK's description of risks to global growth this month is slightly less pessimistic than in May when it described the risks as "considerable."
    Economic growth in Korea continues to remain weak though exports have improved and construction investment has risen, the BOK said, adding that it has not changed its forecast for the domestic economy to show a negative output gap for a considerable time, mainly due to the slow recovery of the global economy.
    South Korea's Gross Domestic Product expanded by 0.8 percent in the first quarter from the fourth, for annual growth of 1.5 percent. The BOK has forecast 2013 growth of 2.6 percent, up from 2012's 2.0 percent.
    Korea's headline inflation rate eased to 1.0 percent in May, down from 1.2 percent the previous month, and continuing a declining trend since mid-2011.  The drop was mainly due to lower prices for agricultural and petroleum products and core inflation, which excludes those items, rose to 1.6 percent from 1.4 percent.
    The central bank forecasts that inflation will remain low, repeating its phrase from May. The BOK targets inflation of 2.5-3.5 percent.
    The BOK noted that domestic financial markets had declined due to the possibility of an earlier-than-expected tapering of U.S. quantitative easing and that long-term interest rates had risen while the Korean won had depreciated "to a considerable extent."
    The won has risen over 10 percent against the Japanese yen this year, putting Korea's exporters at a disadvantage against Japanese competitors. Korea's government has drawn up a 17.3 trillion won supplementary budget to boost economic activity.

Korea holds rate, to watch impact of May cut on inflation - Central Bank News

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South Korea Central Bankers cuts rate 25 bps

Korea cuts rate 25 bps, sees considerable global risks - Central Bank News

South Korea's central bank cut its base rate by 25 basis points to 2.50 percent, saying downside risks to global growth remain "considerable" while domestic growth remains weak with the negative output gap likely to continue for a considerable time.
    The Bank of Korea (BOK), which surprised many by holding its rate steady last month, said it would closely monitor the effect of its rate cut and the government's 17.3 trillion won supplementary budget to keep inflation within its target over the medium term.
    Last month the BOK's Monetary Policy Committee also said there were downside risks to the global economy but this month it used stronger language by describing these risks as considerable.
    At its meeting in April, the BOK decided by a narrow 4-3 vote to hold rates steady despite government pressure. It is the BOK's first rate cut this year after two cuts in 2012, when the base rate was cut by 50 basis points.
    The BOK said moderate economic recovery in the US was continuing but the sluggishness of the euro area's economy has deepened and "the trends of improvement in economic indicators in emerging market countries such as China have been weaker than initially anticipated."

    "The Committee expects the global economy to continue its modest recovery going forward, but judges that the downside risks to growth remain considerable due chiefly to uncertainties related to for instance the sluggishness of economic activity in the euro area and to the implementations of fiscal consolidation in major countries," the BOK said.
    Korea's Gross Domestic Product expanded by a stronger-than-expected 0.9 percent in the first quarter from the fourth quarter's 0.3 percent, the highest growth rate in two years, signs interpreted by some observers that last year's rate cuts were starting to pay off.
    But the BOK said growth remains weak, and although exports are recovering, the pace is modest and domestic demand is alternating between improvement and worsening.
    "Going forward, there is no change to the Committee's forecast that the domestic economy will show a negative output gap for a considerable time, due mostly to the slow recovery of the global economy, to the influence of the Japanese yen weakening, and to the geopolitical risk in Korea," the bank said.
    South Korea's economy expanded by 2.0 percent in 2012, down from 2011's 3.6 percent, and the BOK now expects 2013 growth of 2.6 percent, slightly higher than the government's 2.3 percent forecast.
    Korea's inflation rate fell to 1.2 percent in April from 1.3 percent the prior month, well below the BOK's 2.5-3.5 percent range for the 2013-2015 period. Core inflation also eased to 1.4 percent from 1.5 percent in March.
    The BOK expects inflation to remain low for the time being.

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