South Korea reported its lowest inflation in more than 15 years, which could reinforce expectations for an interest rate cut early in 2015 - though the central bank governor seems to ffeel there's no hurry for one December's consumer price index rose 0.8 percent from a year earlier, Statistics Korea said on Wednesday.
The increase was the smallest since September 1999's 0.8 percent annual rate and matched the median forecast for December in a Reuters poll. A key factor for low inflation was low energy prices. "Sluggish domestic consumption growth will continue to contribute in pulling down inflation next year," said Ma Ju-ok, an economist at Kiwoom Securities in Seoul who anticipates one rate cut in 2015's first quarter. Policymakers have said they expect the inflation rate to rise to around 2 percent late in 2015 as consumption accelerates as part of economic recovery.
But some analysts say low inflation gives the Bank of Korea (BOK) more room to cut its benchmark rate to aid recovery. This year, the central bank reduced it to 2 percent following 25 basis point trims in both August and October. At the end of 2012, the central bank set a target of keeping inflation during 2013-2015 at between 2.5 percent and 3.5 percent on average. In both 2013 and 2014, the rate averaged 1.3 percent, thanks in large part to falling raw-material prices.
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