South Korea Monetary Policy Unchanged in May


South Korean Monetary Policy Committee decided to leave the base rate unchanged at 1.75 percent at its May 15th meeting for the third straight month. Policymakers forecast inflation will continue at a low level, due to low energy prices, and the economy will show a modest trend of recovery.

Excerpts from the statement by the Bank of Korea:

Looking at the Korean economy, although exports have continued their trend of decline and domestic demand-related indicators have fluctuated from month to month, the sentiments of economic agents have improved. On the employment front, the employment-to-population ratio has fallen as the number of persons employed in the agriculture, forestry and fishing sector has decreased, but the unemployment rate has maintained the same level as that during April of last year. The Committee expects that the domestic economy will show a modest trend of recovery going forward, although the negative output gap will persist for a considerable time.
 
Despite a narrowing of the extent of decline in agricultural and petroleum product prices, consumer price inflation registered 0.4 percent in April, the same as in March, as the rate of increase in prices of industrial products slowed. Core inflation excluding agricultural and petroleum product prices fell to 2.0 percent, from 2.1 percent in March. Looking ahead the Committee forecasts that inflation will continue at a low level, due mainly to the effects of the low oil prices. In the housing market, the upward trends of sales and leasehold deposit prices have continued in both Seoul and its surrounding areas and the rest of the country.
 
In the domestic financial markets, long-term market interest rates have risen, owing largely to sharp rises in interest rates in major countries and to increased issuance of bonds. Stock prices have also risen, chiefly on net purchases of domestic stocks by foreigners. The Korean won had appreciated against the US dollar, due mainly to the possibility of a delay in the policy rate hike by the US Federal Reserve and to inflows of foreigners’ securities investment funds, but has since depreciated. The won has shown similar movements against the Japanese yen. 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 supporting the recovery of economic growth, the Committee 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 international oil prices and shifts in major countries’ monetary policies, as well as developments related to the spare capacity in the domestic economy and the trends of household debt and capital flows.

South Korea Monetary Policy Unchanged in May


Bank of Korea l Rida Husna l rida@tradingeconomics.com
5/15/2015 10:12:59 AM