South Korea Holds Base Rate Steady at 1.25%

The Bank of Korea left its base rate steady for the 13th straight meeting at a record low of 1.25 percent in October, as expected, saying inflationary pressures on the demand side are forecast to not be high for the time being. Policymakers also revised up its growth outlook for this year to 3.0 percent from 2.8 percent previously, due to robust exports and recovering private consumption. Meantime, inflation is expected to be slightly higher at 2.0 percent from 1.9 percent.

Excerpts from the statement by The Bank of Korea:

The Board judges that the solid trend of domestic economic growth has continued, as exports and facilities investment have sustained their high rates of increase and private consumption has also picked up moderately. Employment conditions appear to be sustaining their trend of moderate improvement, although the pace of increase in the number of persons employed has slowed somewhat owing to temporary factors. Going forward it is forecast that the domestic economy will maintain its solid trend of growth. The GDP growth rate for this year is expected to be higher than the July projection (2.8 percent), and that for next year also to show its potential level. Exports seem likely to sustain their buoyancy, thanks largely to the global economic recovery, and domestic demand activities will also recover moderately due to the expansion in fiscal spending for instance.

Consumer price inflation has continued at the 2 percent level, in line mainly with increases in the prices of agricultural, livestock and fisheries products. Core inflation (with food and energy product prices excluded from the CPI) has stayed in the mid-1% range, and the rate of inflation expected by the general public at the mid-2 percent level. Looking ahead the Board expects that consumer price inflation will be in the upper-1 percent range for some time, in line chiefly with the disappearance of the base effect from the reduction of electricity fees last year, and then gradually approach the target level. Core inflation will meanwhile remain in the mid-1 percent range for the time being, before gradually rising from next year.

In the domestic financial markets price variable volatility has expanded. Long-term market interest rates have risen and the Korean won-US dollar exchange rate fluctuated, due mainly to changes in expectations concerning monetary policies at home and abroad and to geopolitical risks. Stock prices have risen, on expectations of improvements in corporate performances for example. Household lending has sustained its higher rate of increase than in past years, but the amount of increase has lessened somewhat. Although housing sales prices have shown signs of rebounding slightly in some parts of Seoul and its surrounding areas, their uptrend has in general slowed since the government's announcement of housing market stabilization measures.

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 the inflationary pressures on the demand side are forecast to not be high for the time being, while the domestic economy is expected to continue its solid growth, the Board will maintain its accommodative policy stance while closely checking future economic growth and inflation trends. In this process 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 Holds Base Rate Steady at 1.25%

Bank of Korea l Rida Husna |
10/19/2017 4:13:27 AM