South Korea Monetary Policy Unchanged for 7th Month

South Korean Monetary Policy Committee decided to leave the base rate steady for the 7th straight month at record low of 1.5 percent at its January, 14th meeting, as expected. While forecasting the economy to continue its recovery going forward, policymakers viewed consumer prices will drop considerably short of the target of 2 percent for the time being, mainly due to the weakening effect of cigarette price hike and low oil prices.

Excerpts from the statement by the Bank of Korea:

Looking at the Korean economy, although domestic demand activities have sustained their paces of recovery, driven by consumption, the trend of declining exports has persisted while economic agents’ sentiments have not improved. On the employment front, as the trend of increase in the number of persons employed expanded in December, the employment-to-population ratio rose compared to that in December the year before while the unemployment rate fell. The Board forecasts that the domestic economy will continue its recovery going forward, centering around domestic demand activities, but in view of external economic conditions judges the uncertainties surrounding the growth path to be high.

Consumer price inflation rose from 1.0% the month before to 1.3 percent in December, due chiefly to increases in agricultural product prices and to a narrowing of the extent of decline in petroleum product prices. Looking ahead the Board forecasts that consumer price inflation will fall considerably short of the 2 percent inflation target for the time being, owing mainly to the disappearance of the effect from the cigarette price hike and to the recent further declines in international oil prices. Core inflation excluding agricultural and petroleum product prices meanwhile registered 2.4 percent, the same as in November. In the housing market, the upward trends of sales and leasehold deposit prices slowed somewhat in both Seoul and its surrounding areas and the rest of the country. 

In the domestic financial markets, stock prices and long-term market interest rates have fallen, influenced mostly by instabilities in the Chinese stock market and by the declines in international oil prices, while the Korean won has depreciated substantially against both the US dollar and the Japanese yen, on the effects in addition of Chinese yuan devaluation and increased geopolitical risks. Bank household lending has sustained a trend of increase at a level substantially exceeding that of recent years, led by mortgage loans. 

Looking ahead, while working to sustain the recovery of economic growth, the Board will conduct monetary policy so as to maintain price stability over a medium-term horizon, and pay attention to financial stability. In this process it will closely monitor external risk factors such as any changes in the US Federal Reserve’s monetary policy or in financial and economic conditions in China, the movements of capital flows, and the trend of increase in household debt.

South Korea Monetary Policy Unchanged for 7th Month

Bank of Korea l Rida Husna |
1/14/2016 2:20:17 AM