South Korea Keeps Base Rate Unchanged at 1.5% in May



The Bank of Korea held its base rate steady at 1.5 percent on May 24th, as expected. While saying the solid trend of domestic economic growth will continue due to favorable movements in consumption and exports, policymakers viewed that consumer price inflation will pick up and gradually approach the target level of 2 percent from the second half of this year.

Excerpts from the statement by The Bank of Korea:

The Board sees global economic growth as likely to be affected by factors such as the paces of monetary policy normalization in major countries, the movements toward spreading trade protectionism, and the directions of the US government's economic policies.
 
The Board judges that the solid trend of domestic economic growth has continued, as consumption and exports have shown favorable movements although facilities investment has slowed somewhat. Employment conditions have been sluggish, with the extent of increase in the number of persons employed having remained at a low level. Going forward the Board expects domestic economic growth to be generally consistent with the path projected in April. It anticipates that investment will slow but that the trend of steady increase in consumption will continue, and that exports will also sustain their favorable movements thanks to the buoyancy of the global economy.
 
Consumer price inflation has risen to the mid-1 percent level, due mainly to increases in the prices of agricultural products. Core inflation (with food and energy product prices excluded from the CPI) has also been in the mid-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 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.
 
The domestic financial markets have been generally stable. Although long-term market interest rates have increased, under the effects chiefly of rising government bond yields in major countries, the Korean won-US dollar exchange rate has fluctuated within a relatively narrow range, in line mainly with the global strengthening of the US dollar and with the decline in risks related to North Korea. Household lending has sustained its higher rate of expansion than in past years, led by unsecured loans. The paces of increase in housing sales prices have slowed, especially 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 Keeps Base Rate Unchanged at 1.5% in May


Bank of Korea l Rida | rida@tradingeconomics.com
5/24/2018 2:03:21 AM