SEOUL, KOREA - The Monetary Policy Committee of the Bank of Korea decided today to leave the Base Rate unchanged at 2.75% for the intermeeting period.
Based on currently available information, the Committee considers the moderate economic recovery in the US to have continued but economic activities in the euro area to have remained sluggish, while economic indicators in emerging market countries, led by China, have continued their trends of improvement. The Committee expects the global economy to sustain its modest recovery going forward, but judges that the uncertainties related for instance to the delay in economic recovery in the euro area and to fiscal consolidation in the US remain as downside risks to growth.
In Korea, although exports have maintained their trend of recovery and investment-related indicators have rebounded, the Committee appraises economic growth to have sustained its weak level, as consumption has continued its decline of the previous month. On the employment front, the increase in the number of persons employed has accelerated, centering around the 50-and-above age group. Going forward, there is no change to the Committee’s forecast that the domestic economy will show a negative output gap for a considerable time, due mostly to the slow recovery of the global economy and to the influence of Japanese yen weakening.
Consumer price inflation declined slightly to 1.3% in March, from 1.4% the previous month, due mainly to decreases in the prices of agricultural, livestock and fisheries products, while core inflation excluding the prices of agricultural and petroleum products rose slightly to 1.5%, from 1.3% in February. Inflation appears likely to remain relatively low, due to the weakening of demand-side pressures. However, the Committee forecasts that it will rise above its current level in line with the partial disappearance of downward pressures from institutional factors. As for housing prices, those in Seoul and its surrounding areas continued on their downtrend and those in the rest of the country on their moderate uptrend.
In the financial markets, stock prices have fallen substantially and the Korean won has depreciated significantly against the US dollar, as foreigners’ securities investment funds have flowed out in line with the reemergence of euro area risk and with the increase in geopolitical risk in Korea. Long-term market interest rates have continued their downtrend, primarily on concerns about the slowdown in economic recovery.
Looking ahead, the Committee will closely monitor external risk factors and Korea’s geopolitical risk and any consequent changes in financial and economic conditions, continue its efforts to lower inflation expectations, and conduct monetary policy so as to keep consumer price inflation within the inflation target range over a medium-term horizon while ensuring that the growth potential is not eroded due to the continuation of slow growth.