Bank of Korea Holds Base Rate Steady for 3rd Month


South Korean Monetary Policy Committee decided to leave its base rate steady for the third straight month at record low of 1.25 percent at its September meeting, as widely expected. While forecasting that consumer prices will remain at a low level for the time being, policymakers said they will closely monitor the trend of increase in household debt and potential changes in the monetary policies of major countries.

Excerpts from the statement by the Bank of Korea:

Looking at the Korean economy, exports have increased slightly on the effects of transitory factors, and domestic demand activities appear to have continued their improvements while the sentiments of economic agents have improved somewhat. 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 0.7 percent the month before to 0.4 percent in August, owing chiefly to the effect of a temporary cut in electricity fees. Core inflation excluding agricultural and petroleum product prices also declined to 1.1 percent, from 1.6 percent in July. In the housing market, the upward trends of sales and leasehold deposit prices have continued. Looking ahead the Board forecasts that consumer price inflation will remain at a low level for the time being, and then gradually rise due to the disappearance of the effect of the temporary electricity fee reduction and the weakening influence of the low oil prices.

In the domestic financial markets since August, stock prices have risen as foreigners’ stock investment funds have recorded net inflows in line with continued risk-taking tendencies globally. Long-term market interest rates and the Korean won-US dollar and Korean won-Japanese yen exchange rates have fallen, after having previously risen, affected mainly by changes in the expectations of a policy rate hike by the US Federal Reserve. 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 for 3rd Month


Bank of Korea l Rida Husna | rida@tradingeconomics.com
9/9/2016 3:55:20 AM