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

Bank of Korea Raises This Year's Growth Forecast from 3.0% to 4.0% by 1%P
Base Interest Rate Held Steady at 0.5% per Annum... 'Economy Over Inflation'

[Asia Economy Reporters Eunbyeol Kim, Sehee Jang]The Monetary Policy Committee has decided to maintain the Bank of Korea's base interest rate at the current level (0.50%) until the next monetary policy direction decision.

The global economy has strengthened its recovery due to continued stimulus measures by major countries, expanded vaccination, and easing of restrictions on economic activities. In the international financial markets, despite continued risk appetite, concerns about inflation caused the stock prices of major countries to stall, and government bond yields fluctuated within a relatively narrow range. Going forward, the global economy and international financial markets are expected to be influenced by the degree of COVID-19 resurgence, vaccine distribution status, policy responses of each country, and their ripple effects.

The domestic economy has expanded its recovery. Exports continued to perform well, facility investment maintained a steady recovery, and private consumption gradually moved away from sluggishness. The employment situation showed improvement, with an increased number of employed persons. Going forward, the domestic economy is expected to strengthen its recovery supported by favorable exports and investment, and improvement in private consumption. The GDP growth rate for this year is expected to be around 4%, significantly exceeding the February forecast of 3.0%.

The consumer price inflation rate rose sharply to the low 2% range due to continued price increases in petroleum products and agricultural, livestock, and fishery products, as well as an expanded rise in service prices. The core inflation rate (excluding food and energy) rose considerably to the low 1% range. The general public's expected inflation rate slightly increased from the low 2% range. The consumer price inflation rate for this year is expected to be in the high 1% range, significantly exceeding the February forecast of 1.3%, while the core inflation rate is expected to remain in the low 1% range.

In the financial markets, long-term market interest rates rose due to strengthened domestic and international economic recovery, and stock prices continued to rise but somewhat declined influenced by movements in the international financial markets. The won/dollar exchange rate fluctuated slightly. Household loans continued to increase significantly, and housing prices maintained a high rise in both the metropolitan area and provinces.

The Monetary Policy Committee will operate monetary policy to support the recovery of growth and ensure that the inflation rate stabilizes at the target level in the medium term, while paying attention to financial stability. Although the domestic economy's recovery is expected to strengthen and inflation is likely to continue rising for some time, uncertainties related to the development of COVID-19 remain, and demand-side inflationary pressures are expected to be limited; therefore, the easing stance of monetary policy will be maintained. In this process, the Committee will monitor the development of COVID-19 and the economic conditions of major countries, while paying closer attention to the accumulation of financial imbalances such as capital concentration in asset markets and the increase in household debt.

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