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Bank of Korea raises base rate to 3.25%

June 10, 2011‐ Korea

Making more steps towards controlling inflation, the Monetary Policy Committee of the Bank of Korea has decided to raise the Base Rate by 25 basis points to 3.25%.

The surprising rate hike done this time, on June 10, 2011, is the fourth for the year and the first in the last three months. The present economic system is a little different. There are signs of economic recovery at home and abroad but the inflation isnt ceasing to persist. The committee feels that the labor market as well as private sector market are showing signs of recovery.

In regard to the housing prices, the upward movements in Seoul and its surrounding areas have come to a halt but the steep upward trend in the rest of the country has continued.

The Committee feels that while taking overall account of financial and economic conditions both at home and abroad, will conduct monetary policy with a greater emphasis on ensuring that the basis for price stability is firmly anchored while the economy continues its sound growth.

Bank of Korea (BOK) Gov. Kim Choong-soo feels that BOK will try to raise the interest rate carefully because a steep rate increase could dent the economy.

Some global economists feel that the present level of 3.25% isnt enough. Raising to 4-4.25 per cent to reach neutral levels (no stimulus or brake) would become necessary, they feel.

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