Base Rate Unchanged at 3.25 Pct.

Monetary Policy Committee sees no encouraging sign for economic recovery as world economy still staggers

The Monetary Policy Committee of the Bank of Korea decided to leave the Base Rate unchanged at 3.25% for the intermeeting period.Based on currently available information, the Committee considers some economic indicators in the US to have shown trends of further improvement, but economic activities in the euro area to have remained sluggish. Growth in emerging market economies has continued to exhibit signs of weakening, due mostly to slowing exports. Going forward, the Committee expects the pace of global economic recovery to be moderate, and judges that risk factors still exist, including the sovereign debt problems in Europe and geopolitical risks in the Middle East.
In Korea, although export growth has slowed the Committee appraises economic growth to have shown signs of a moderate recovery, with consumption and construction investment increasing. On the employment front, the uptrend in the number of persons employed is being sustained, led by the private sector. The Committee anticipates that the domestic economic growth rate will gradually return to its long-term trend going forward, although downside risks remain due mostly to the impacts of external risk factors.
Consumer price inflation fell to 2.6% in March, influenced chiefly by the expansion of government subsidies for childcare fees and free school meals, and core inflation dropped compared to the previous month as well. The Committee does however recognize the presence of potentially destabilizing factors, such as the ongoing high inflation expectations and the geopolitical risks in the Middle East. In the housing market, prices remained on a decline in Seoul and its surrounding areas and on a rise in the rest of the country, while the uptrend in leasehold deposits nationwide was maintained.
In the financial markets, price variables displayed fluctuations for a time, affected for instance by conditions in the major economies and international financial markets, after which stock prices then fell and the Korean won depreciated against the US dollar. Long-term market interest rates continued to rise, mitigating the degree of yield curve inversion.
Looking ahead, the Committee, while closely monitoring financial and economic risk factors both at home and abroad and endeavoring to lower inflation expectations, will conduct monetary policy so as to stabilize consumer price inflation at the midpoint of the inflation target over a medium- Domestic economic activity appears to be pulling out of its sluggishness, with the easing of the international financial market unrest due to the euro area sovereign debt problems.
During February, facilities investment fell but retail sales and construction investment increased. Exports continued on a favorable course in March.
In terms of production, both manufacturing and services increased in February compared to the previous month.
On a year-on-year basis, most consumption and production indicators rose.
Despite the easing of the uncertainty surrounding external conditions, the Korean economy is expected to maintain a moderate trend of growth for the time being, influenced by the global economic slowdown particularly in the euro area. In terms of the upside and downside risks to its future growth path, the downside predominate.
The pace of consumer price increase is unlikely to accelerate to any great degree given the expansion of welfare policies, but potential destabilizing factors exist including high inflation expectations and geopolitical risks in the Middle East.
The current account is forecast to maintain its underlying surplus.

A scene of the Monetary Policy Committee meeting chaired by Gov. Kim Joong-soo of the Bank of Korea held earlier this month which decided to leave the base rate unchanged at 3.25 pct.