Reading the commentary, one would think the Bank of Korea had raised rates, but in fact they held, as expected.
Inflation was 4.7 per cent in the year to March, against the Bank’s target of 4 per cent, “due mostly to the rises in prices of petroleum products and personal services.” More than this, swift price rises are set to continue and inflation expectations are growing. The Bank said: “There is a growing possibility of this high rising price trend persisting in the coming months, driven largely by increased demand pressures from the economic upswing, by instability of international commodity prices, and by elevated inflation expectations.”
Typically, high and rising inflation would prompt a rate hike. Particularly since strong growth continues, and is expected to continue. “The committee Read more
Persistent inflation and rising housing prices have prompted a further rate rise from Seoul. The key seven day repurchase rate is now 3 per cent, a level last seen fleetingly at the end of 2008. The Bank held rates at their last meeting in February but signalled rate rises ahead.
Some have criticised the Bank for being behind the curve tackling inflation, which rose to a two-year high of 4.5 per cent in February, above the 2-4 per cent target but below expectations in some quarters of 5 per cent inflation. Read more
South Korea, holder of the world’s fifth-biggest foreign exchange reserves, is considering expanding its small holdings of gold to diversify its dollar-heavy portfolio.
Such a move could prove significant to the international gold market as Seoul currently only holds about 14 tonnes of the lustrous metal, equal to just 0.2 per cent of its $290bn reserves at current prices. By contrast, Italy and France each hold just under 2,500 tonnes of gold, amounting to more than 65 per cent of their reserves. Read more
South Korea is the latest Asian country to start raising rates. Following calls from the IMF, the central bank of South Korea has increased the base rate for the first time since late 2008. A cautious increase of 25bp leaves the rate at 2.25 per cent.
An expected rise in inflation was the main reason behind the move, even though current inflation is below the 3 per cent target. Economists at international banks said they expected a further 50bp increase by the end of the year. Korea’s move follows Malaysia’s increase of 25bp yesterday.