[Full Text] Bank of Korea Monetary Policy Committee May Monetary Policy Direction

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] The Bank of Korea held a Monetary Policy Committee meeting on the morning of the 28th and lowered the base interest rate to 0.5%. Additionally, it forecasted this year’s real GDP growth rate at -0.2% due to the COVID-19 pandemic. This is only the second time the Bank of Korea has issued a negative growth forecast, the previous instances being in April 2009 (-2.4%) and July 2009 (-1.6%), the year following the financial crisis.

The following is the full text of the monetary policy direction

The Monetary Policy Committee decided to operate monetary policy by lowering the Bank of Korea base interest rate from the current 0.75% to 0.50% until the next monetary policy direction decision.

The global economy has contracted significantly as economic activities have been restricted due to the spread of COVID-19. In international financial markets, uncertainty has eased considerably as major countries’ aggressive monetary and fiscal policies, expectations for the resumption of economic activities, and other factors have led to rising stock prices, reduced volatility in government bond yields and exchange rates. Going forward, the global economy and international financial markets are expected to be influenced by the development of COVID-19 and the ripple effects of policy responses in each country.

The domestic economy has slowed sharply. Consumption has continued to be sluggish, exports have sharply declined, facility investment recovery has been constrained, and construction investment adjustments have continued. Employment conditions have worsened, with a significant increase in the decrease of employed persons, especially in the service sector. The domestic economy is expected to continue its sluggish trend for the time being due to the impact of the COVID-19 spread. This year’s GDP growth rate is expected to be around 0%, significantly below the February forecast of 2.1%, and the uncertainty of the growth outlook is judged to be very high.

The consumer price inflation rate has fallen sharply to the low single digits due to declines in petroleum and public service prices and a reduced increase in agricultural, livestock, and fishery product prices. The core inflation rate (excluding food and energy) also fell to the low single digits, and the general public’s expected inflation rate slightly declined to the mid-1% range. The consumer price inflation rate is expected to remain in the low single digits this year due to the impact of falling international oil prices and weakened demand-side inflationary pressures, while the core inflation rate is expected to be in the mid-0% range.

In financial markets, volatility in price variables has decreased due to stabilization in international financial markets and active market stabilization measures. Long-term market interest rates have fallen, stock prices have risen, and the won/dollar exchange rate fluctuated within a narrow range. Household loans have increased at a reduced pace, and the rise in housing prices has slowed.

The Monetary Policy Committee will continue to operate monetary policy with attention to financial stability while supporting the recovery of growth and ensuring that the inflation rate stabilizes at the target level over the medium term. Given the expected sluggish growth of the domestic economy due to the spread of COVID-19 and the low demand-side inflationary pressures, the easing stance of monetary policy will be maintained. In this process, the Committee will closely monitor the development of COVID-19, its impact on domestic and international finance and economy, and changes in financial stability conditions.

This content was produced with the assistance of AI translation services.