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Korea Monetary Policy April 2019

Korea: Bank of Korea holds interest rates steady in April, citing low inflation

At its 18 April monetary policy meeting, the Bank of Korea held the base rate steady at 1.75%, as had been expected by most market analysts, where it has been since November last year.

April’s decision reflected weak inflation in recent months and lower Bank of Korea inflation forecasts. Inflation decelerated to the lowest level since July 2016 in March, while core inflation dropped to a multi-year low. Looking ahead, the Bank of Korea said inflation will “fluctuate for some time below 1.0%, lower than the path projected in January, and then run at the low- to mid-1.0% level for the second half of this year”. Part of the reason for subdued inflationary pressures stems from more modest economic growth, both at present and as forecast for the future. The Bank cut its economic growth forecast for this year to 2.5%, down from the 2.6% forecast.

The Bank of Korea did not seem to suggest a hawkish monetary policy move was on the near-term horizon. It said it will “maintain its accommodative monetary policy stance”, as the domestic economy is not expected to diverge significantly from its potential level and inflationary pressures on the demand side will be subdued. The next monetary policy meeting is set for 31 May.

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