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[2019-1] Significance of Inflation Target for 2019 Onwards

Group : Macro Economy
Research Department (02-759-4172) 2019.02.15 3150

The Bank of Korea published Inflation Target for 2019 Onwards on December 26, 2018. The target was finalized after consultation with the government and with the approval of the Bank’s Monetary Policy Board (MPB).


Three aspects of Inflation Target for 2019 Onwards are particularly noteworthy. First, major components of the inflation target, such as the target itself, the way it is presented, and the target indicator, were kept unchanged, with the target set at the level of previous CPI (2.0 percent, year on year, point target). This is because the level and volatility of inflation in Korea have decreased and are now similar to those in advanced countries, and there was therefore no great need to change the target and other components. Second, the period during which the inflation target would be effective was not specified. The Bank had previously expected to change the inflation target every three years, but it now intends to keep the target unchanged unless there is a particular reason to adjust it. In this way, the Bank has enhanced the stability of the inflation targeting framework significantly. Finally, the Bank strengthened its communication with the public. The Bank decided to publish an inflation assessment twice a year, which includes price developments, future inflation forecasts and risks, and the monetary policy stance for achieving price stability. The Bank will provide explanations of this assessment to the public through various means, such as by holding Governor‘s press conferences. In addition to the Governor’s appearances before the National Assembly to answer questions, the Governor’s press conferences regarding monetary policy decisions, the release of the minutes of MPB meetings, and the publication of the Bank’s Monetary Policy Report, new communication channels have been introduced, and this has further strengthened the foundation on which the transparency and credibility of inflation targeting can be enhanced. Furthermore, the Bank will review the inflation targeting framework every two years and explain the review to the public, strengthening its institutional communication.