Bank of Korea Holds Base Rate Steady at 1.25% in August


South Korean Monetary Policy Committee left its base rate on hold at record low of 1.25 percent at its August meeting, as widely expected, saying it 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. Policymakers forecast that the domestic economy will sustain its trend of modest growth going forward and that inflation will remain at a low level for the time being.

Excerpts from the statement by the Bank of Korea:

Looking at the Korean economy, exports have remained on their trend of decline but domestic demand activities including consumption appear to have continued their albeit moderate improvements. The sentiments of economic agents have meanwhile improved slightly. On the employment front, as the number of persons employed has increased, the employment-to-population ratio rose and the unemployment rate fell in July compared to those in July 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 fell from 0.8 percent the month before to 0.7 percent in July, in line mainly with a slowdown in the rate of increase in service fees. Core inflation excluding agricultural and petroleum product prices also declined to 1.6 percent, from 1.7 percent in July. 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 since July, stock prices have risen and the Korean won has appreciated to a large extent against the US dollar, as foreigners’ securities investment funds have shown net inflows owing chiefly to expectations of monetary policy easing in major countries. The won has meanwhile appreciated against the Japanese yen, in line with the won’s relative strengthening. Long-term market interest rates have shown slight fluctuations at low levels. 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, any changes in the monetary policies of major countries, and the progress of corporate restructuring.

Bank of Korea Holds Base Rate Steady at 1.25% in August


Bank of Korea l Rida Husna | rida@tradingeconomics.com
8/11/2016 11:27:17 AM