Bank of Korea Maintains Growth Forecast but Raises Inflation Outlook (Comprehensive)

Growth Rate Forecast for This Year Maintained at 3.0%, Next Year at 2.5%

COVID-19 Uncertainty, Slow Domestic Demand Recovery

Inflation Rate Revised Up to 1.3%... Inflation Debate

Base Interest Rate Held Steady at Historic Low of 0.50%

[Asia Economy Reporter Kim Eun-byeol, Sejong=Reporter Jang Se-hee] The Bank of Korea maintained its forecast for this year's real Gross Domestic Product (GDP) growth rate at 3.0%. This decision reflects ongoing uncertainties due to the COVID-19 pandemic and a slow recovery in domestic demand, indicating the need for further observation. Considering economic uncertainties, the base interest rate was also held steady at a historic low of 0.50% per annum. However, the consumer price inflation forecast for this year was revised upward to 1.3%, reflecting global inflation trends such as rising international oil prices.

On the 25th, the Monetary Policy Board of the Bank of Korea held a monetary policy meeting at the Bank's headquarters in Jung-gu, Seoul, chaired by Governor Lee Ju-yeol, and decided to maintain this year's growth forecast at 3.0%. The growth forecast for next year was also maintained at 2.5%. The consumer price inflation forecast for this year was adjusted upward by 0.3 percentage points from 1.0% to 1.3%. The inflation forecast for next year was lowered from 1.5% to 1.4%.

The growth and inflation forecasts announced by the Bank of Korea are interpreted as indicating that uncertainties in the Korean economy have not yet been resolved. Although exports are recovering, domestic demand remains sluggish, and it is difficult to predict when COVID-19 vaccinations will be completed, making it hard to assess their impact on growth.

Governor Lee stated about the domestic economy, "Recovery is expected to continue centered on exports and investment, but uncertainties regarding the speed of recovery remain high." Regarding the global economy, he evaluated that "The impact of movement restrictions has persisted, resulting in a slow recovery trend."

The decision to hold the base interest rate steady at 0.50% per annum also reflects these uncertainties. It signifies the intention to maintain an accommodative monetary policy stance considering the resurgence of COVID-19 and delays in real economic recovery.

With the Bank of Korea revising its inflation forecast upward, attention is also focused on inflation trends. Governor Lee said, "General public inflation expectations have risen to around 2%," and forecasted, "This year's consumer price inflation will exceed the November forecast of last year due to rising international oil prices and gradual economic improvement, with core inflation expected to be around 1%."

As of 10:36 a.m. on the same day, the yield on the 10-year Korean government bond rose to 1.878%, reflecting expectations of rising inflation.

Kim Jeong-sik, Professor Emeritus of Economics at Yonsei University, said, "Due to the uncertainty surrounding the progression of COVID-19, it seems the growth forecast was made conservatively." Regarding the inflation forecast, he interpreted, "The upward revision reflects expectations that the economy may improve."

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