Bank of Korea Holds Base Rate Steady for 4th Month


South Korean Monetary Policy Committee left its base rate steady for the fourth straight month at record low of 1.25 percent at its October meeting, as expected. While forecasting consumer prices will gradually rise, due to the disappearance of the effect of the temporary cut in electricity fees and to the rebound in oil prices, policymakers said the economy will sustain its trend of modest growth going forward.

Excerpts from the statement by the Bank of Korea:

Looking at the Korean economy, exports have declined but domestic demand activities appear to have continued their improvements, driven mainly by investment in construction. On the employment front, the trend of increase in the number of persons employed slowed in September, while the unemployment rate rose compared to that in September of last year. The employment-to-population ratio was meanwhile slightly higher. The Board forecasts that the domestic economy will sustain its trend of modest growth going forward, owing chiefly to a gradual recovery in global trade and to the effects of expansionary macroeconomic policies. However, in view of economic conditions domestically and abroad, it judges the uncertainties surrounding the growth path to be high.

Consumer price inflation rose from 0.4% the month before to 1.2% in September, owing chiefly to increases in agricultural product prices. Core inflation excluding agricultural and petroleum product prices also rose to 1.3%, from 1.1% in August. In the housing market, the upward trends of sales and leasehold deposit prices have continued, centering around the Seoul area. Looking ahead the Board forecasts that consumer price inflation will gradually rise, due mainly to the disappearance of the effect of the temporary cut in electricity fees and to the rebound in international oil prices.

In the domestic financial markets since September, long-term market interest rates and the Korean won-US dollar and Korean won-Japanese yen exchange rates have risen, in line mainly with strengthened expectations of a policy rate hike by the US Federal Reserve. Stock prices have rebounded after having declined, owing in part to the rise in international oil prices. 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.

Meanwhile, in its latest economic forecasts, the central bank expected consumer prices to rise 1.0 percent in 2016, compared to a previous estimate of 1.1 percent. In 2017, consumer prices is projected to grow by 1.9 percent, unchanged from an earlier figure. 

Bank of Korea Holds Base Rate Steady for 4th Month


Bank of Korea l Rida Husna | rida@tradingeconomics.com
10/13/2016 4:48:54 AM