Bank of Korea Conducts First Monetary Policy Review in 25 Years but Decides to Maintain 2% Inflation Target

[Photo by Reuters-Yonhap News]

[Asia Economy Reporter Park Byung-hee] The Bank of Canada (BOC) considered revising its inflation target for monetary policy for the first time in 25 years but decided not to change the existing 2% inflation rate target, according to major foreign media reports on the 9th (local time).

The BOC reviews its monetary policy targets every five years, and the current target is set to expire at the end of this year. For the past 30 years, the BOC has maintained a monetary policy framework aiming to keep inflation within a 1-3% range, targeting the midpoint of 2%. Although it is standard practice to reassess this target every five years, no review had been conducted in the past 20 years. This time, the BOC, together with the Ministry of Finance, reviewed the inflation target for the first time in 25 years.

However, officials ultimately decided not to revise the 2% inflation target, and an official announcement on this matter is expected within a few days.

The government of Justin Trudeau was reportedly in favor of raising the BOC’s inflation target, believing that a higher inflation rate would be necessary to stimulate the economy.

However, as inflation caused by supply chain disruptions has lasted longer than expected and prices have continuously risen over the past year, the view that the central bank should be empowered to control inflation has gained more support.

Doug Porter, Chief Economist at BMO Capital Markets, said, "With inflation continuously rising over the past year, the view that now is not the time to adjust the inflation target (upward) has strengthened."

Canada’s consumer price inflation rate for October recorded 4.7%, the highest since 2003.

While the U.S. Federal Reserve (Fed) operates monetary policy based on two goals?price stability and full employment?the BOC’s monetary policy target focuses solely on price stability.

However, in practice, the BOC has considered employment an important factor alongside inflation in its monetary policy operations. Therefore, officials said that employment will be added to the BOC’s monetary policy objectives in the upcoming official explanation of its monetary policy framework.

There are also expectations that the BOC will create room to allow more flexibility in its monetary policy operations.

It is known that the BOC targets 2% inflation over a period of about two years in its actual monetary policy operations. Some officials said that this period of two years might be extended to allow the BOC more flexibility in achieving its inflation target.

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