Following is a translation of the full text of the Bank of Korea’s statement on monetary policy decision for August. The central bank cut the policy interest rate by a quarter percentage point to 2.25 percent after keeping the rate on hold for 14 straight months. ― Ed.
The Monetary Policy Committee of the Bank of Korea decided today to lower the base rate by 25 basis points, from 2.50 percent to 2.25 percent.
Based on currently available information, the committee considers that, although the trend of economic recovery in the U.S. has been sustained, the eurozone’s economic recovery still appears weak, while trends of economic growth in emerging market countries have differed from country to country.
The committee forecasts that the global economy will sustain its modest recovery going forward, centering around advanced economies, but judges that the possibility exists of its being affected by the changes in global financial market conditions stemming from the shift in the U.S. Federal Reserve’s monetary policy stance, by the weakening of economic growth in some emerging market countries and by geopolitical risks.
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| Bank of Korea Gov. Lee Ju-yeol presides over a rate-setting meeting on Thursday at the bank’s headquarters in downtown Seoul. (Ahn Hoon/The Korea Herald) |
In Korea, exports have maintained their buoyancy but the committee judges that improvements in domestic demand, which had contracted due mainly to the impact of the Sewol ferry accident, have been insufficient, and that the consumption and investment sentiments of economic agents also continue to show sluggishness.
On the employment front, the scale of increase in the number of persons employed has expanded in line with increases in the 50-and-above age group and in the service sector. The committee expects that the negative output gap in the domestic economy will gradually narrow going forward, although its pace of narrowing will be moderate.
Consumer price inflation fell from 1.7 percent the month before to 1.6 percent in July, due mainly to increases in the extents of decline in the prices of agricultural and petroleum products. Core inflation excluding agricultural and petroleum product prices rose slightly to 2.2 percent, from 2.1 percent in June.
The committee forecasts that inflation will gradually rise, but judges that for the time being inflationary pressures will not be high. Housing prices outside Seoul and its surrounding areas showed a slight upward movement, while leasehold deposit prices both in Seoul and its surrounding areas and in the rest of the country continued their modest uptrends.
In the domestic financial markets, after having risen substantially owing chiefly to the government’s announcement of economic policies, stock prices have fallen back somewhat due for example to geopolitical risks. The Korean won has depreciated under the influence of the U.S. dollar’s strength globally, and long-term market interest rates have fallen.
Looking ahead, the committee will conduct monetary policy so as to keep consumer price inflation within the inflation target range over the medium-term while supporting the recovery of economic growth. In this process it will closely monitor external risk factors such as shifts in major countries’ monetary policies, changes in economic agents’ sentiment and movements of future economic indicators including the household debt trend, while observing the effects of this month’s base rate cut and the government’s economic policies. (Yonhap)
