The Monetary Policy Board of the Bank of Korea decided today to leave the Base Rate unchanged at 0.50% for the intermeeting period.
Currently available information suggests that the recovery of the global economy has remained slow due to the ongoing influence of the movement restrictions following the resurgence of COVID-19. In global financial markets, stock prices and government bond yields in major countries have increased, mainly driven by the expectations for economic recovery following the expansion of vaccinations and the prospect of a further fiscal stimulus package by the new US administration. Looking ahead, the Board sees global economic growth and global financial markets as likely to be affected largely by the severity of the resurgence of COVID-19 and the status of vaccine distribution, as well as by national policy responses and their effects.
The Korean economy has continued to recover modestly. Although private consumption has remained weak as social distancing has been prolonged, exports have sustained their buoyancy led by the IT sector and facilities investment has continued to recover. Labor market conditions have remained weak, as the number of persons employed declined sharply compared to the corresponding period last year. Going forward, the economy is likely to continue its recovery, led by exports and investment. However, uncertainties surrounding the pace of recovery are judged to remain elevated. GDP growth this year is projected to be around 3.0%, generally consistent with the November forecast.
Consumer price inflation has remained at the mid-0% level as the surging prices of agricultural, livestock, and fisheries products were offset by factors such as the decreasing prices of public services. Core inflation (excluding changes in food and energy prices from the CPI) has also remained at the mid-0% level. The inflation expectations of the general public have risen to 2%. It is forecast that consumer price inflation will run at the low- to mid-1% level this year, exceeding the November forecast of 1.0%, largely reflecting the increase in global oil prices and gradual improvement in economic activity. Core inflation is forecast to run at around 1%.
In domestic financial markets, long-term market interest rates and the Korean won to US dollar exchange rate have risen, mainly driven by global financial market movements. Stock prices have fluctuated considerably, affected by both expectations for economic recovery and caution about the recent rally. Household loan growth has accelerated, and housing prices have continued to increase rapidly in all parts of the country.
The Board will continue to conduct monetary policy in order to support the economy and stabilize consumer price inflation at the target level over a medium-term horizon, while paying attention to financial stability. As the recovery in the Korean economy is expected to be modest and inflationary pressures on the demand side are forecast to remain weak, the Board will maintain its accommodative monetary policy stance. In this process the Board will thoroughly assess developments related to COVID-19 as well as the effects of the policy measures taken in response to the pandemic, while paying attention to changes in financial stability conditions such as fund flows to asset markets and household debt growth.