The Bank of Korea on Friday decided to hold the benchmark interest rate unchanged at 3.25 percent for the 10th straight month.
The decision was expected as CPI eased from 3.1 percent in February to 2.6 percent in March to a 20-month low; it now rests on the lower end of the central bank's target range of 2 to 4 percent. On month, inflation eased 0.1 percent.
Core inflation, which strips out the volatile costs of food, was up 1.9 percent on year after rising 2.5 percent in the previous month. On month, core CPI fell 0.4 percent after adding 0.1 percent in February.
"Consumer price inflation fell to 2.6 percent 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 bank said in a statement accompanying the decision. "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."
The bank believes that economic conditions in the United States are continuing to improve, although Europe remains a source of concern. The emerging markets are beginning to slow, the bank said, because of a decline in 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," the bank said.
The central bank had unexpectedly hiked interest rates by 25 basis points at its June 2011 meeting and left the policy unchanged since then.
"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-term horizon amid continuing sound growth of the economy," the bank said.
by RTT Staff Writer
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