Bank of Korea Holds Base Rate Steady at 1.25%


South Korean Monetary Policy Committee decided to leave the base rate steady at record low of 1.25 percent at its July, 14th meeting, as expected. While weighing the effects of a surprise rate cut in June as well as the impact of Brexit vote, policymakers judged the uncertainties surrounding the growth path to be high.

Excerpts from the statement by the Bank of Korea:

Looking at the Korean economy, while the sentiments of economic agents have been sluggish, the trend of decline in exports has continued but domestic demand activities including consumption appear to be improving. On the employment front, as the number of persons employed has increased, the employment-to-population ratio rose and the unemployment rate fell in June compared to those in June of last year. The Board forecasts that the domestic economy will sustain its trend of modest growth going forward, owing chiefly to expansionary macroeconomic policies, but in view of economic conditions domestically and abroad judges the uncertainties surrounding the growth path to be high.

Consumer price inflation registered 0.8% in June, the same as in May, in line mainly with declines in agricultural product prices. Core inflation excluding agricultural and petroleum product prices rose slightly to 1.7%, from 1.6% in May. In the housing market, sales and leasehold deposit prices showed low rates of increase. Looking ahead the Board forecasts that consumer price inflation will remain at a low level for the time being, and then gradually rise as the effects of the low oil prices diminish.

In the domestic financial markets, stock prices and the Korean won-US dollar and Korean won-Japanese yen exchange rates fluctuated temporarily to large extents after the Brexit decision. Long-term market interest rates have fallen considerably, owing largely to declines in government bond rates in major countries. Household lending has sustained a trend of substantial increase at a level exceeding that of recent years, led by mortgage loans.

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. In this process it will closely monitor the trend of increase in household debt, the effects of the Brexit, any changes in the monetary policies of major countries, and the progress of corporate restructuring.

Meanwhile, in its latest economic forecasts, the central bank  expected the economy to grow by 2.7 percent in 2016, down slightly from an earlier projection in April of 2.8 percent. Consumer prices are expected to rise 1.1 percent, compared to a previous estimates of 1.2 percent. Unemployment rate is projected to stay at 3.8 percent, higher than a preliminary figure of 3.6 percent. In 2015, South Korean economy expanded by 2.6 percent, slowing from 3.3 percent in 2014.



Bank of Korea Holds Base Rate Steady at 1.25%


Bank of Korea l Rida Husna | rida@tradingeconomics.com
7/14/2016 6:05:19 AM