The Bank of Korea is the central bank of South Korea. It was established in 1950 and has a primary responsibility of achieving price stability targets that control of inflation. One of the ways of doing this is keeping in check the rate at which money is borrowed or lent in addition to market prices of commodities both locally and globally.
With respect to its role in the economy of South Korea, the central made a decision to hold its key interest rate at 1.5%. Additionally, the bank has also been obliged to keep its inflation and economic growth forecasts low following global economy instability in financial markets and the recent China crisis.
Driving Inflation in Korea
With these occurrences in place, the current governor of the Bank of Korea Lee Ju Yeol is under pressure to spur inflation to the new target which lies at 2 percent. Moreover, the bank is supposed to elevate the country’s economy, keeping in mind that it has failed to attain the 2 percent rise in prices that it had set earlier. The bank faces new challenges such as the decline in exports which leaves a narrow room for any further monetary easing.
According to some recent Bloomberg, the seven-day repurchase rate being left at 1.5% is justifiable as per 15 economists from Bloomberg. On the other hand, the bank also lowered its projections for inflation to 1.4 percent from the earlier rate which was 1.7 percent back in October last year. Previously in 2015, the bank cut its GDP to 2.6 percent from 2.7 percent. By April this year, the bank forecast its growth in GDP to be at 2.8% while inflation growth at 1.2 percent.
Balancing Growth Potential
On the same note, there have been concerns towards the Bank of Korea(Central Bank) over low inflation as well as growth with some economists suggesting that the central bank should take aggressive measures to counter these developments. The bank cut interest rates about four times in between 2015 and 2014. With factory output of the country expanding to 2.4% in February and exports falling by about 8% in March we are yet to see the next move by the Bank of Korea during the next meeting and how it effect on world economy.