By Central Bank News
The central bank of South Korea held its base rate steady at 2.75 percent, saying it expects global economic growth to be “very modest” going forward and the downside risks to growth are large due to the U.S. fiscal consolidation issues and Europe’s fiscal crises.
But the Bank of Korea (BOK) also said that Korea’s exports appeared to be emerging from their downtrend and consumption and investment had turned around and was starting to pick up while the number of employed had risen in the the service and even more in the manufacturing sector.
Nevertheless, the BOK, which has cut its base rate twice this year for a total cut of 50 basis points, “anticipates that the negative output gap in the domestic economy will persist for a considerable time, due mostly to the prolongation of the euro area fiscal crises and to the delay in recovery of the global economy.”
South Korea’s export-driven economy has been hit hard by slow global growth, with Gross Domestic Product only expanding by 0.2 percent in the third quarter from the second, for a year-on-year growth rate of 1.6 percent, the weakest in 12 quarters.
Last month the BOK cut its economic growth forecast for 2012 to 2.4 percent and for 2013 it expects growth of 3.2 percent. In 2011 the economy grew by 3.6 percent.
Weak demand has restrained inflation, with consumer prices rising by an annual 2.1 percent in October, slightly up from 2.0 percent in September.
“The Committee forecasts that inflation will not deviate substantially from its current level for the time being, owning primarily to the easing of demand-side pressures and despite the influence for example of international grain price instability,” the BOK said after a meeting of its Monetary Policy Committee.
In October the BOK cut its forecast for inflation to 2.3 percent in 2012 and 2.7 percent in 2013.
The BOK has a 2-4 percent inflation target range for 2012 and for 2013-2015 it targets a 2.5-3.5 percent increase in consumer prices.