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 weakened due to the resurgence of COVID-19. In global financial markets, despite the coronavirus resurgence, stock prices and government bond yields in major countries have increased steeply and the US dollar has remained weak, due to the rollout of coronavirus vaccines and the consequent hopes for economic recovery. 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 contracted due to the recent coronavirus resurgence, facilities investment has continued to recover and export growth has increased, led by the IT sector. Labor market conditions have remained weak, with the number of persons employed continuing to decline sharply compared to the corresponding period last year. Going forward, the economy is likely to recover gradually, led by exports and investment. However, uncertainties surrounding the economic outlook 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 and core inflation (excluding changes in food and energy prices from the CPI) have remained low at the mid-0% level, reflecting prolonged effects from the decline in the prices of petroleum products and public services compared to the corresponding period last year. The inflation expectations of the general public have remained at the upper-1% level. It is forecast that consumer price inflation will run at the mid- to upper-0% level for some time and then moderately increase to around 1%. Core inflation is forecast to remain at the low- to mid-0% level.
In domestic financial markets, stock prices have surged as the rise in stock prices in major countries and optimistic prospects for the performance of domestic corporations have heightened investors’ risk appetite. Long-term market interest rates have increased, while the Korean won to US dollar exchange rate has fallen. Household loan growth has remained high and housing prices have accelerated 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.