Bank of Korea Holds Base Rate Steady for 8th Month


South Korean Monetary Policy Committee decided to leave the base rate steady for the 8th straight month at record low of 1.5 percent at its February, 16th meeting, as expected. While forecasting the economy to continue its recovery going forward, policymakers viewed consumer prices will continue at a low level, mainly due to a decline in oil prices.

Excerpts from the statement by the Bank of Korea:

Looking at the Korean economy, the trend of decline in exports has expanded and the recovery of domestic demand activities such as consumption has also shown signs of weakening somewhat, while the sentiments of economic agents have been sluggish. 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 have increased.

Consumer price inflation fell from 1.3 percent the month before to 0.8 percent in January, owing chiefly to the disappearance of the effect of the cigarette price hike, and core inflation excluding agricultural and petroleum product prices also fell to 1.7 percent, from 2.4 percent in December. Looking ahead the Board forecasts that consumer price inflation will continue at a low level, due mainly to the declines in international oil prices. In the housing market, the upward trends of sales and leasehold deposit prices slowed in both Seoul and its surrounding areas and the rest of the country.

In the domestic financial markets, influenced by global stock market unrest and by foreigners’ continuing net sales of domestic securities, stock prices have fallen and the Korean won has depreciated against the US dollar. The won has depreciated even more against the Japanese yen than the US dollar, on the strengthening of the yen due to investor preference for safe assets. Long-term market interest rates have fallen, in response mainly to declines in interest rates in major countries and to the movements of domestic economic and price indicators. 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 monetary policies of major countries or in financial and economic conditions in China, the movements of capital flows, geopolitical risks, and the trend of increase in household debt.

Bank of Korea Holds Base Rate Steady for 8th Month


Bank of Korea l Rida Husna | rida@tradingeconomics.com
2/16/2016 2:05:02 AM