11 March 2010
BOK postpones decision on policy rate to next MPC meeting in April. By this decision, the policy rate stays at 2% for the 13th consecutive month. The decision was widely expected because of the slowdown suggested by some macro-data in January and because of the BOK’s tacit practice of not changing its policy stance at the end of a governor’s term of office. Thus, Governor Lee leaves rate hikes in the in-tray for the new governor, who will take office in April.
11 March 2010
Trade balances (deficit of USD461m in January and surplus of USD2.3bn in February) were still smaller than the monthly average of USD3.4bn. As the trade surplus shrank, there were worries about an economic slowdown based on the previous experience back in 2009. At that time, net exports, i.e. the trade surplus, contributed significantly to economic growth. However, this year is different from last year in two ways. The first is that exports are not expected to decrease as they did in 2009 but will likely increase. Furthermore, the pace of recovery in domestic demand is expected to be maintained and lead to an increase in import demand. As the Korean economy is expected to grow faster than the global economy, growth in imports should exceed that of exports, leading to a fall in the trade surplus.