Bank of Korea Holds Base Rate Steady for 10th Month


South Korean Monetary Policy Committee decided to leave the base rate steady for the 10th straight month at record low of 1.5 percent at its April, 19th meeting, as expected. While highlighting the persistent decline in exports, policymakers viewed domestic consumption is somewhat improving. Going forward, the economy is expected to show a trend of modest recovery.

The bank also revised down its growth forecast for 2016 to 2.8 percent from an initial projection of 3.0 percent. The inflation forecast for the year was also cut  to 1.2 percent from 1.4 percent.

Excerpts from the statement by the Bank of Korea: 

Looking at the Korean economy, the trend of decline in exports has continued but domestic demand activities such as consumption, and the sentiments of economic agents appear to be improving somewhat. On the employment front, the unemployment rate was somewhat higher in March compared to that in March of last year, owing mainly to an expansion in job search activities. The employment-topopulation ratio was also increased, however, as the number of persons employed has steadily grown. The Board forecasts that the domestic economy will show a trend of modest improvement going forward, centering around domestic demand activities, but in view of external economic conditions judges the uncertainties surrounding the growth path to be still high.

Consumer price inflation fell from 1.3 percent the month before to 1.0 percent in March, owing chiefly to increases in the extents of decline in petroleum product prices. Core inflation excluding agricultural and petroleum product prices also decreased slightly to 1.7 percent, from 1.8 percent in February. Looking ahead the Board forecasts that consumer price inflation will fall considerably short of the 2 percent inflation target for the time being, due mainly to the low oil prices. In the housing market, sales prices maintained their level of the previous month while the uptrend in leasehold deposit prices slowed.

In the domestic financial markets, stock prices have risen and the Korean won has appreciated against the US dollar since March, as foreigners’ securities investment funds have recorded net inflows on the effects of further monetary policy easing by major countries. After having appreciated against the Japanese yen, the won has depreciated somewhat against it again in line with the yen’s strengthening. Long-term market interest rates have fallen back after having previously risen, in reflection mainly of interest rate movements in major countries. Bank household lending has sustained a trend of increase at a level exceeding that of recent years, led by mortgage loans.

Looking ahead, while working to support the recovery of economic growth the Board will conduct monetary policy so as to maintain price stability over a medium-term horizon, and also pay attention to financial stability. In this process it will closely monitor any changes in monetary policies or in financial and economic conditions in major countries, the movements of capital flows, and the trend of increase in household debt.





Bank of Korea Holds Base Rate Steady for 10th Month


Bank of Korea l Rida Husna | rida@tradingeconomics.com
4/19/2016 5:52:54 AM