SEOUL: The Bank of Korea’s monetary policy board on Friday kept the nation’s benchmark interest rate unchanged at the record low 1.50 percent – in line with expectations.
The central bank had trimmed rates by 25 basis points in both its June and March meetings. That followed quarter-point cuts in October and August – before which the central bank had kept the rate unchanged for 14 straight meetings.
“The board forecasts that the global economy will maintain its recovery going forward, albeit at a moderate pace, centering around advanced economies such as the US, but judges that the possibility exists of its being affected by heightened international financial market volatility, due to the instabilities in the Chinese financial and foreign exchange markets and to a shift in the US Federal Reserve’s monetary policy,” the bank said.
The BoK was satisfied that the threat of deflation had been addressed by the rate cut in June as consumer prices held steady at 0.7 percent although price growth remained below 1.0 percent for the ninth straight month.
On a monthly basis, inflation added 0.2 percent – also matching forecasts and unchanged from the previous month. Core CPI, which excludes the volatile costs of food, advanced an annual 2.1 percent on year in August after gaining 2.5 percent in the previous month. On a monthly basis, core inflation gained 0.2 percent following the 0.4 percent gain a month earlier.
“The board forecasts that inflation will continue at a low level, due mainly to the effects of the low oil prices. In the housing market, the upward trends of sales and leasehold deposit prices have continued in both Seoul and its surrounding areas and the rest of the country,” the bank said.
And while some of the past month’s economic data was skewed, the bank hinted rather broadly that additional stimulus may be in the cards in the future. “The board forecasts that the domestic economy will show a trend of recovery going forward, but in view of external economic conditions judges the uncertainties surrounding the growth path to have increased,” the bank said.
South Korea’s gross domestic product gained only 0.3 percent on an annualized quarterly basis in the second quarter of 2015. That was unchanged from the July advance estimate, and it was down from 0.8 percent in the first quarter. On a yearly basis, GDP added 2.2 percent – also unchanged from the advanced estimate and down from 2.5 percent in the three months prior.
Industrial production in South Korea was down 0.5 percent on month in July. That was shy of expectations for a decline of 0.1 percent following the upwardly revised 2.5 percent jump in June (originally 2.3 percent).
On a yearly basis, industrial production slipped 3.3 percent – also below expectations for a fall of 1.2 percent following the upwardly revised 1.4 percent increase in the previous month (originally 1.2 percent).
“Looking ahead, while working to sustain the recovery of economic growth, the board will conduct monetary policy so as to maintain price stability over a medium-term horizon and pay attention to financial stability,” the bank said.
