South Korea economy: BOK holds the line against stimulus pressure
The decision by the Bank of Korea (BOK, South Korea’s central bank) to hold its main policy interest rate steady is creating tension with the stimulus-minded government led by the president, Park Geun-hye.
The central bank surprised many observers by not implementing a much-anticipated rate cut at its monetary policy meeting in April. The base rate has been left unchanged for six consecutive months, at 2.75%. Many observers had expected a 25-basis-point cut, given the amount of pressure on the BOK to get in line with the new government’s efforts to introduce economic stimulus.
Policymakers at the Ministry of Strategy and Finance and in the ruling Saenuri Party are among those calling for more accommodative monetary policy. The strategy and finance ministry is also pushing for a W17trn (US$15.6bn) supplementary budget to cover stimulus programmes after sharply lowering its economic growth forecast for this year from 3% to 2.3%. The deterioration in inter-Korean tensions and the increasing spillover effects from Japan’s aggressive monetary easing on South Korean exports are also arguably strengthening the case for the BOK to join the stimulus bandwagon.
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