Excerpts from the statement by the Bank of Korea:
Based on currently available information the Board considers that the trend of global economic recovery has expanded somewhat, led by the US and some emerging market economies. Global financial market volatility has diminished, as the trends of rising government bond rates in major countries have subsided and stock prices have risen. Looking ahead the Board judges that the global economic recovery will be affected by factors such as the directions of the new US government's economic policies, the pace of monetary policy normalization by the US Federal Reserve, and the movements toward spreading trade protectionism.
In Korea, the slump in exports has eased but the Board judges the pace of domestic economic growth to have slowed somewhat, as the recovery in domestic demand activities has weakened. Employment conditions have been somewhat sluggish, with the number of persons employed having continued to decline in the manufacturing sector while its trend of increase in the service sector has slowed as well. The Board sees the domestic economy as likely to continue its trend of moderate growth going forward, and forecasts a rate of GDP growth for this year in the mid-2 percent range. The trend of recovery in domestic demand activities is expected to be limited, due to deteriorations in economic sentiment for example, but exports will likely improve thanks chiefly to the global economic recovery.
Consumer price inflation has risen to the mid-1 percent level, in line with the easing of downward price pressures on the supply side. Core inflation (excluding food & energy product prices from the CPI) has been in the mid- to upper-1 percent range, while the rate of inflation expected by the general public has remained at the mid-2 percent level. Looking ahead, the Board forecasts that consumer price inflation will gradually rise to near the 2 percent target level by around the middle of 2017, on the effects mainly of the increases in international oil prices, and that core inflation will maintain a level in the mid- to upper-1 percent range.
In the domestic financial markets, the volatilities of both stock prices and long-term market interest rates have subsided somewhat as the global financial market has stabilized. The Korean won-US dollar exchange rate has continued its uptrend seen since October of last year, in line with the strengthening of the US dollar globally. The upward trends of housing sales prices have slowed, centering around Seoul and its surrounding areas. Household lending has continued its substantial increase, but the amount of increase in that by banks has shown signs of lessening recently.
Looking ahead, the Board will conduct monetary policy so as to ensure that the recovery of economic growth continues and consumer price inflation approaches the target level over a medium-term horizon, while paying attention to financial stability. As the inflationary pressures on the demand side are not expected to be high, given the moderate pace of domestic economic growth, the Board will maintain its stance of monetary policy accommodation. In this process it will closely monitor the uncertainties in domestic and external conditions and their effects, the progress of monetary policy normalization by the US Federal Reserve, and the trend of increase in household debt.