South Korea Maintains Key Rate Steady At 1.25%


The central bank of South Korea left its base rate steady for the tenth straight meeting at a record low of 1.25 percent in May, as expected, adopting a stance of stability in its first meeting since President Moon Jae-In's inauguration. Policymakers await the new administration's policy reforms, which unofficially begun with Moon's recent proposal for a 10 trillion Won stimulus in 2017.

Excerpts from the statement by The Bank of Korea:

Based on currently available information the Board considers that the global economic recovery has continued to expand. The global financial markets have shown generally stable movements, with for example the trend of rising stock prices continuing. Looking ahead the Board sees the global economic recovery as likely to be affected by factors such as the directions of the US government's economic policies, the pace of monetary policy normalization by the US Federal Reserve, the movements toward spreading trade protectionism, and political uncertainties in major countries.
 
The Board judges that the trend of domestic economic growth has expanded, as exports and investment have improved although the pace of increase in consumption has remained weak. On the employment front, the number of persons employed has continued to rise significantly year-on-year, although the unemployment rate has also risen as job search activities have increased. Going forward, domestic economic growth is expected to be slightly above the path projected in April. The Board judges that consumption will likely continue its modest trend of growth, but that the trends of improvement in exports and investment should expand compared to the April forecasts.
 
Consumer price inflation has continued at the 2% target level, in line mainly with increases in the prices of petroleum and agricultural, livestock and fisheries products. Core inflation (with food and energy product prices excluded from the CPI) has fallen slightly to the mid-1% range, and the rate of inflation expected by the general public has remained at the mid-2% level. Looking ahead the Board expects that consumer price inflation will for the time being fluctuate at around the 2% level, and for the year as a whole not diverge greatly from the April projection (1.9%). Core inflation appears likely to show a level in the mid- to upper-1% range.
 
Looking ahead, the Board will conduct monetary policy so as to ensure that the recovery of economic growth continues and consumer price inflation can be stabilized at the target level over a medium-term horizon, while paying attention to financial stability. As the inflationary pressures on the demand side are not expected to be high although the trend of domestic economic growth is likely to expand somewhat, the Board will maintain its stance of monetary policy accommodation. In this process it will closely monitor the progress of monetary policy normalization by the US Federal Reserve, conditions related to trade with major countries, the directions of the new government's economic policies, the trend of increase in household debt, and geopolitical risks.

Charles | charles@tradingeconomics.com
5/25/2017 9:55:24 AM