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 strengthened, supported by the economic stimulus in major countries and the expansion of vaccinations. In global financial markets, stock prices and government bond yields in major countries have increased, driven mainly by higher expectations 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 recovery of the Korean economy has strengthened somewhat. Exports have sustained their buoyancy and facilities investment has continued to recover robustly, while the sluggishness in private consumption has eased. Labor market conditions have showed some signs of improvement, with the number of persons employed shifting to an increase 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 above the February forecast of 3.0%.
Consumer price inflation has risen to the mid-1% level due to an increase in petroleum product prices as well as rising prices of agricultural, livestock, and fisheries products. Core inflation (excluding changes in food and energy prices from the CPI) has moved up slightly within the mid-0% range. The inflation expectations of the general public have picked up to the lower-2% level. Looking ahead, it is forecast that consumer price inflation will run above the path projected in February and fluctuate for some time at around 2%, before declining slightly. Core inflation is forecast to increase gradually to the 1% range.
In domestic financial markets, long-term market interest rates and stock prices have risen, affected by global financial market movements and improvement of economic indicators. The Korean won to US dollar exchange rate rose slightly, largely reflecting the strengthening of the US dollar. Household loan growth has remained high, 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. While the Korean economic recovery is expected to strengthen gradually, there is still a high level of uncertainty surrounding the path of COVID-19 and inflationary pressures on the demand side are forecast to be modest. Thus, the Board will maintain its accommodative stance of monetary policy. 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.