Off the wire
• China Focus: China's gender imbalance concerns reborn  • Australian gov't reiterates commitment to search for MH370  • 1st LD: China 2014 fiscal revenue growth at 23 year low  • Roundup: S. Korea's industrial output growth falls to record low in 2014  • Chinese man executed for rape of minor  • S. Korea's industrial output growth falls to record low in 2014  • Indian stocks open higher  • Guangxi police bust 145 stowaway cases in 2-yr campaign  • China to hold 2nd World Internet Conference in October  • China's female pilot trainee operates submersible  
You are here: 　 Home

S. Korea unwilling to cut policy rate to counter low inflation

Xinhua, January 30, 2015 Adjust font size:

South Korea's central bank on Friday showed unwillingness toward cutting policy rate to counter low headline inflation alone as such rate cuts may cause various side effects.

The Bank of Korea (BOK) said in its inflation report that it has kept policy rate at a relatively low level to bolster economic recovery rather than to achieve its inflation target range.

Consumer price inflation has stayed below the BOK's inflation target band of 2.5-3.5 percent for a long time, but it was mainly caused by supply-side factors, including low global oil prices and cheaper farm goods, the BOK said.

The bank cited potential side effects from rate cuts to tackle low inflation, including a rise in the already record-high household debts and volatile foreign capital flow in and out of the economy.

The assessment came amid growing worries about deflation in the economy, which increased calls for further rate cuts. The BOK lowered benchmark interest rate in August and October 2014 to a record low two percent.

Some BOK watchers expected that the central bank will have no choice but to further ease monetary policy this year on low inflation and sluggish economy.

South Korea's consumer prices rose 1.2 percent in the second half of 2014, down from a 1.4 percent gain in the first half. The consumer price inflation hovered below the BOK's target of 2.5-3.5 percent for 10 straight quarters.

The low inflation was caused by demand-side factors, such as economic slowdown, but it stemmed mainly from a prolonged weakness in farm goods and oil product prices, the bank said.

Inflation expectations among consumers, surveyed by the BOK, maintain the mid-two percent level that is a record low but much higher than headline inflation. Core inflation, which excludes volatile farm goods and oil products, reached almost two percent last year.

The BOK expected consumer price inflation to rise from 1.2 percent in the first half of 2015 to 2.5 percent in the second half, setting its core inflation outlook at 2.6 percent this year. Endi