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Bank Of Korea Keeps Rates Steady At 3.25%

January 14, 2012

The members of the Bank of Korea monetary policy board on Friday kept interest rates unchanged at the current level of 3.25 percent for the seventh straight month, in line with expectations.

The central bank had unexpectedly hiked interest rates by 25 basis points at its June meeting. Before that, it had refrained from any action at the previous two meetings in April and May. It had hiked rates by 25 basis points from 2.75 percent in March.

"The committee considers major advanced economies to have remained sluggish, and growth in emerging market economies to have also slowed somewhat," the bank said in a statement accompanying the decision. "Going forward the Committee expects the pace of global economic recovery to be very moderate, and judges that the downside risks to growth are becoming larger, due mostly to the sovereign debt crisis in Europe and to the possibilities of the slumps in major country economies and the unrest in international financial markets continuing."

Analysts had widely expected no change even though consumer prices in December remained at 4.2 percent for the second straight month – keeping overall inflation above the central bank’s target range of 2 to 4 percent. November had marked the first time this year that CPI had fallen within the range.

On a monthly basis, CPI was up 0.4 percent. Core CPI, that excludes prices movements in food and energy, rose 3.6 percent year-on-year compared to a 3.5 percent gain in November.

However, producer price inflation in South Korea eased to 4.3 percent in December from 5.1 percent in November. On a monthly basis, the producer price index was up 0.2 percent compared to 0.2 percent fall in November. The index rose 6.1 percent for the year 2011 as a whole.

"Consumer price inflation continued to exceed 4 percent in December last year, driven by the prices of petroleum products and processed food, and core inflation also came in at a level similar to that of the previous month," the bank said. "In the coming months, factors including the base effect from the previous year and the easing of demand-side pressures will work in favor of price stability, but the Committee expects the pace of decline in the inflation rate to be moderate given factors such as ongoing high inflation expectations."

Before raising rates by 25 basis points last November to 2.50 percent, the bank had left rates unchanged since it unexpectedly raised rates by 25 basis points from the record low of 2.00 percent last July.

Before that, the rate had held steady for 16 straight months, after the bank had trimmed rates six times in the previous four months.


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