Korea: Bank of Korea holds base rate at 1.50% in February
February 16, 2016
At its 16 February monetary policy meeting, the Bank of Korea (BoK) held its base rate at a record-low 1.50%. The decision met market expectations and marks the eight consecutive meeting in which the rate was kept on hold.
In its accompanying statement, the BoK noted that global growth weakened recently, as the pace of recovery in the U.S. and the euro area softened, while China and other emerging economies slowed. Overall, the Bank still expects the global recovery to continue, but turned more cautious over increased external risks and volatility, including uncertainty surrounding China as well as global financial markets. The Bank also turned less upbeat regarding the Korean economy, highlighting that exports continued to deteriorate and that there are signs of a weakening in domestic demand and economic sentiment. The Bank foresees that the Korean economy will continue to recover, mainly on the back of domestic demand, but at the same time warned that risks to the growth outlook increased, mainly due to external factors.
As for price developments, the BoK stated that inflation dropped notably in January, mainly reflecting the fading of the effect of last year’s cigarette price hike. Going forward, the Bank expects inflation to remain modest due to the oil price slump. Regarding financial markets, the Bank stated that the won depreciated against the U.S. dollar and the Japanese yen and stock prices fell, owing to the global stock market turmoil and increased sell-off of Korean securities. Meanwhile, long-term interest rates dropped and bank household lending continued to rise, largely owing to increasing mortgage loans. Finally, the Bank emphasized its commitment to balancing economic recovery with price and financial stability. Going forward, the Bank will closely monitor household debt trends, external risk factors, international monetary policy developments as well as the situation in China.