BoK Holds Rate Steady; Revises GDP Outlook


South Korean Monetary Policy Committee decided to leave the base rate unchanged at record low of 1.5 percent at its October 15th meeting, as widely expected. Policymakers also downwardly revised its economic growth forecast this year to 2.7 percent from an earlier projection of 2.8 percent.

Excerpts from the statement by the Bank of Korea:
 
Looking at the Korean economy, although domestic demand activities such as consumption and investment have shown trends of recovery, the trend of declining exports has persisted while the improvement in economic agents’ sentiments has been inadequate. On the employment front, as the number of persons employed increased in September, the employment-to-population ratio rose compared to that in September of last year while the unemployment rate maintained the same level. The Board forecasts that the domestic economy will continue its recovery going forward, centering around domestic demand activities, but in view of external economic conditions judges the uncertainties surrounding the growth path to be high.
 
Consumer price inflation fell to 0.6 percent in September, from 0.7 percent in August, owing mainly to slowdowns in the rates of agricultural product price increase and to declines in petroleum product prices. Core inflation excluding agricultural and petroleum product prices registered 2.1 percent, the same as in August. Looking ahead the Board 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 accelerated, centering around Seoul and its surrounding areas.
 
In the domestic financial markets, stock prices have risen and the Korean won has appreciated against both the US dollar and the Japanese yen, in line mostly with the subsiding of instabilities in the Chinese financial and foreign exchange markets and with expectations of a delay in the policy rate hike by the US Federal Reserve. Long-term market interest rates have fallen, in response mainly to interest rate movements in major countries. 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 working to sustain the recovery of economic growth, the Board 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 the trend of increase in household debt and external risk factors such as any changes in the US Federal Reserve’s monetary policy or in economic conditions in emerging market countries including China, as well as the trends of capital flows.

Regarding the revision, the latest forecasts of 2.7 percent GDP growth was the fourth reduction since the beginning of this year, when policymakers had estimated a 3.9 percent expansion. Inflation was also projected to rose by 0.7 percent for 2015 from an earlier estimates of 0.9 percent.

BoK Holds Rate Steady; Revises GDP Outlook


Bank of Korea l Rida Husna | rida@tradingeconomics.com
10/15/2015 8:27:14 AM