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

"Concerns Over Slower Economic Recovery Due to COVID-19 Resurgence"

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] On the 27th, the Bank of Korea forecasted that South Korea's economic growth rate for this year would be -1.3% due to the impact of the COVID-19 pandemic. The base interest rate was decided to remain unchanged at the record low level of 0.50%. This decision was made as the second wave of COVID-19 became apparent and there was no room left for further rate cuts.

The following is the full text of the monetary policy direction

The Monetary Policy Committee decided to maintain the Bank of Korea's base interest rate at the current level (0.50%) until the next monetary policy direction decision and operate monetary policy accordingly.

The global economy showed signs of easing economic contraction, but the pace slowed somewhat due to the continued spread of COVID-19. In international financial markets, major countries' stock prices rose amid expectations of economic recovery, while the US dollar weakened and government bond yields rose slightly. 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 continued its sluggish trend. Although the decline in exports somewhat narrowed, the improvement in private consumption weakened, facility investment recovery was constrained, and construction investment continued to adjust. Employment conditions remained poor, with a significant decrease in the number of employed persons. The recovery of the domestic economy is expected to be slower than anticipated due to the impact of the COVID-19 resurgence. The GDP growth rate for this year is expected to be in the low -1% range, significantly below the May forecast (-0.2%), and the uncertainty of the forecast path is judged to be very high.

The consumer price inflation rate rose to the low 0% range due to the expansion of price increases in agricultural, livestock, fishery products and the narrowing decline in petroleum prices. The core inflation rate (excluding food and energy) was in the mid 0% range, and the general public's expected inflation rate rose to the high 1% range. This year, the consumer price inflation rate and core inflation rate are expected to be in the mid 0% range due to the continued impact of falling international oil prices and low inflationary pressure from the demand side.

The financial market showed a generally stable appearance, supported by reduced volatility in international financial markets. The won/dollar exchange rate declined, long-term market interest rates fluctuated within a narrow range, and stock prices rose sharply but fell after mid-August due to concerns about the COVID-19 resurgence. Household loans increased, and housing prices continued to rise in both the Seoul metropolitan area and provincial regions.

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 in the medium term. As the domestic economy is expected to remain sluggish due to the spread of COVID-19 and inflationary pressure from the demand side is expected to stay low, the easing stance of monetary policy will be maintained. In this process, the Committee will closely monitor the degree of COVID-19 resurgence, its impact on finance and the economy, changes in financial stability, and the ripple effects of past policy responses.

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