The Monetary Policy Committee: "Tightening stance should continue for a considerable period... Growth trends also to be reviewed"

Resolution on Monetary Policy Direction
FOMC Holds Base Interest Rate Steady at 3.5%

Lee Chang-yong, Governor of the Bank of Korea, is striking the gavel at the regular Monetary Policy Committee meeting held at the Bank of Korea in Jung-gu, Seoul on the 23rd. Photo by Joint Press Corps

The Monetary Policy Committee of the Bank of Korea announced on the 23rd that it decided to keep the base interest rate at 3.5% per annum, stating that "it is appropriate to assess the pace of inflation slowdown and the unfolding of uncertainty factors while determining the necessity of further rate hikes."

In the monetary policy direction statement issued that day, the committee explained, "Although the inflation rate is expected to gradually decrease, the upward trend exceeding the target level is projected to continue throughout the year, and given the high uncertainty in policy conditions, we will continue to monitor the pace of inflation slowdown and the development of uncertainty factors."

It evaluated that while the global economy continued to experience a slowdown in growth and inflation, concerns about recessions in major countries have somewhat eased due to sustained favorable employment conditions and alleviated energy supply concerns, and that the pace of inflation slowdown in countries such as the United States has become more gradual.

The committee stated, "In international financial markets, following the release of U.S. employment and inflation data exceeding market expectations, the Federal Reserve's (Fed) terminal interest rate is expected to be higher than initially anticipated, leading the U.S. dollar, which had been weakening, to rapidly strengthen." It added, "Going forward, the global economy and international financial markets are likely to be influenced by the pace of global inflation slowdown, changes in major countries' monetary policies and U.S. dollar movements, the recovery of the Chinese economy after easing of quarantine policies, and geopolitical risks."

Regarding the domestic economic situation, it explained that growth slowdown continued as exports declined due to worsening IT sector conditions and the consumption recovery trend weakened, while employment remained generally favorable but the increase in the number of employed persons narrowed due to economic slowdown.

The committee said, "Going forward, the domestic economy is expected to continue a sluggish growth trend due to the global economic slowdown and rising interest rates. However, from the second half of the year, domestic growth is expected to gradually improve with the recovery of the Chinese and IT economies, although the outlook remains highly uncertain."

Lee Chang-yong, Governor of the Bank of Korea, is striking the gavel at the regular Monetary Policy Committee meeting held at the Bank of Korea in Jung-gu, Seoul, on the 23rd. Photo by Joint Press Corps

Consumer prices were described as still unstable, despite a slowdown in the rise of petroleum product prices, due to increases in electricity rates and high rises in processed food prices.

The committee stated, "The consumer price inflation rate is expected to be around 5% in February, then gradually slow down due to the base effect from last year's sharp rise in international oil prices and weakening demand pressures. However, due to the impact of public utility rate hikes, the slowdown is expected to be more gradual compared to major advanced countries."

It added that there is significant uncertainty regarding future inflation outlook related to international oil prices and exchange rate movements, the degree of domestic and foreign economic slowdown, the extent and ripple effects of public utility rate hikes.

Regarding financial and foreign exchange markets, it said, "Since February, with the possibility of the U.S. Fed strengthening its tightening stance, volatility has increased, as seen in the sharp rebound of the won-dollar exchange rate and market interest rates, which had been declining since November last year. Household loans have seen an expanded decrease, and housing prices have continued to decline both in the Seoul metropolitan area and other regions."

The committee explained that it will continue to operate monetary policy focusing on price stability while also considering other factors such as the economy.

It stated, "We will monitor growth and operate monetary policy to ensure that the inflation rate stabilizes at the target level over the medium term while paying attention to financial stability. Although the domestic economic growth rate is expected to decline, inflation is projected to continue its high upward trend exceeding the target level, and given the high uncertainty in policy conditions, it is necessary to maintain a tightening stance focused on price stability for a considerable period while assessing the need for additional rate hikes."

It added, "In this process, we will closely examine the pace of inflation slowdown, downside risks to growth and risks to financial stability, the effects of past rate hikes, and changes in major countries' monetary policies."

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