Bank of Korea Policy Focus Shifts toward Growth Support from Price Stability

SEOUL, KOREA - The Bank of Korea will shift its policy focus away from price stability and more toward growth support.

 

 

As consumer prices remain below the 1-percent level for months, the central bank seems to have changed its stance. In addition, it may decide to lower the benchmark rate next year rather than raise it under conditions in which the growth pace would not pick up.

 

The Monetary Policy Committee of the Bank of Korea said on December 26 in a report "Major Directions of 2014 Monetary and Credit Policy,""[Our major focus is] to lend support to industry in regaining growth momentum while making sure consumer prices remain within a target range of 2.5 and 3.5 percent in the medium term." Comparing to what the bank said late last year underscoring price stability over anything else, this is a big change of policy priority.

 

As for the continued low-price trend, the report commented, "We will keep watching the price trend that stays well below the target levels for several months on end whether it is within the target range." The November consumer prices were below 1 percent for three consecutive months. For 18 months in a row, consumer prices have hovered below the lower bound (2.5%) of the central bank's target price range. This is interpreted as reflecting concerns by policy makers about a Japanese-style deflation due to a prolonged low interest rate trend.