South Korea Leaves Monetary Policy Unchanged

The Bank of Korea held its base rate steady at 1.5 percent on February 27th, as expected. While saying the trend of steady increase in consumption will continue and consumer price inflation can be stabilised at the target over a medium-term horizon, policymakers mentioned that they will judge carefully whether it is necessary to adjust its accommodative monetary policy stance further.

Excerpts from the statement by The Bank of Korea:

The Board judges that the solid trend of domestic economic growth has continued, as exports are sustaining their buoyancy and consumption and facilities investment have shown favorable movements, although construction investment has declined. The trend of improvement in employment conditions appears to have remained moderate, even though the extent of increase in the number of persons employed accelerated in January owing to temporary factors. Going forward the Board expects domestic economic growth to be generally consistent with the path projected in January. It anticipates that investment will slow, but that the trend of steady increase in consumption will continue, due in large part to improvements in household income conditions, and that exports will also sustain their favorable movements thanks to the buoyancy of the global economy.

Consumer price inflation has slowed to the 1percent level recently, in consequence mainly of declines in the prices of livestock products and of a reduction in the extent of increase in personal service fees. Core inflation (with food and energy product prices excluded from the CPI) has fallen to the low 1 percent range, and the rate of inflation expected by the general public has remained at the mid-2 percent level. Looking ahead it is forecast that consumer price inflation, after remaining in the low- to mid-1 percent range for some time, will pick up and gradually approach the target level from the second half of this year. Core inflation will also gradually rise.

In the domestic financial markets the volatility of price variables has expanded considerably, in reflection of global financial market movements. Long-term market interest rates have risen, stock prices have declined and the Korean won-US dollar exchange rate has fallen, after having previously increased. Household lending has shown a higher rate of expansion than in past years, although the amount of its expansion has continued to decline. Housing sales prices have shown low rates of increase overall, but have risen faster in some parts of Seoul and its surrounding areas.

Looking ahead, the Board will conduct monetary policy so as to ensure that the recovery of economic growth continues and consumer price inflation can be stabilized at the target level over a medium-term horizon, while paying attention to financial stability. As it is forecast that inflationary pressures on the demand side will not be high for the time being, while the domestic economy is expected to continue its solid growth, the Board will maintain its accommodative monetary policy stance. In this process it will judge carefully whether it is necessary to adjust its accommodative monetary policy stance further, while closely checking future economic growth and inflation trends. It will also carefully monitor any changes in the monetary policies of major countries, conditions related to trade with major countries, the trend of increase in household debt, and geopolitical risks.

South Korea Leaves Monetary Policy Unchanged

Bank of Korea l Rida Husna |
2/27/2018 2:30:12 AM