[Full Text] August Bank of Korea Monetary Policy Direction

Since Frozen at 0.50% for 15 Months
Growth Rate Expected at 4.0% This Year... Inflation Rate at 2.1%

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] On the 26th, the Bank of Korea held a Monetary Policy Board meeting presided over by Governor Lee Ju-yeol at the Bank of Korea headquarters in Seoul and raised the base interest rate from the existing 0.50% to 0.75%. This interest rate hike is the first in 2 years and 9 months since November 2018, and the first increase in 15 months since it was last held steady at 0.50%.

The following is the full text of the monetary policy direction.

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

The global economy continued its recovery due to the expansion of vaccination in major countries and the easing of restrictions on economic activities. In international financial markets, government bond yields in major countries fell due to the resurgence of COVID-19, while the US dollar strengthened amid the possibility of tapering by the US Federal Reserve within the year, and stock prices in emerging markets declined. Going forward, the global economy and international financial markets are expected to be influenced by the degree of COVID-19 resurgence, vaccine distribution status, changes in major countries' monetary policies, and their ripple effects.

The domestic economy continued a favorable recovery trend. Although private consumption somewhat slowed due to the resurgence of COVID-19, exports remained strong and facility investment showed a steady trend. Employment conditions continued to improve with a sustained increase in the number of employed persons. Going forward, the domestic economy is expected to continue its recovery as exports and investment remain robust and private consumption gradually improves with expanded vaccination and supplementary budget execution. The GDP growth rate for this year is expected to be around 4%, as projected in May.

The consumer price inflation rate remained at a high level in the mid-2% range due to continued rises in petroleum and agricultural, livestock, and fishery product prices, as well as an expansion in service price increases. The core inflation rate (excluding food and energy) was in the low 1% range. The general public's expected inflation rate rose to the mid-2% range. The consumer price inflation rate for this year is expected to rise to the low 2% range, exceeding the May forecast (1.8%), while the core inflation rate is expected to remain in the low 1% range.

In financial markets, stock prices fell and the won/dollar exchange rate rose significantly due to movements in international financial markets and the domestic resurgence of COVID-19. Government bond yields declined mainly in long-term bonds. Household loans increased, and housing prices continued to rise sharply in both the Seoul metropolitan area and other regions.

The Monetary Policy Board will continue to operate monetary policy with attention to financial stability while ensuring that the recovery in growth continues and that inflation stabilizes at the target level over the medium term. Although uncertainties related to COVID-19 persist, since the domestic economy is maintaining a favorable growth trend and inflation is expected to remain above 2% for the time being, the degree of monetary policy easing will be gradually adjusted going forward. In this process, the timing of any additional adjustments to the degree of easing will be carefully judged by closely monitoring the development of COVID-19, changes in growth and inflation trends, accumulated risks of financial imbalances, and changes in major countries' monetary policies.

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