Korea: Bank of Korea keeps base rate unchanged in February
February 27, 2018
At its 27 February meeting, the Monetary Policy Board (MPB) of the Bank of Korea (BOK) decided to keep the base rate unchanged at 1.50%, a move that was widely expected by market analysts. This was Governor Lee Ju-yeol’s last policy meeting, as his current four-year term ends on 31 March. President Moon Jae-in will nominate Lee’s successor in the coming month. Although a BOK governor can be reappointed for a second term, this has never occurred since the strengthening of the BOK’s independence in December 1997.
The Bank’s decision came after inflationary pressures moderated in recent months, mainly due to falling prices of livestock products and weaker price increases in personal service fees. Core inflation, meanwhile, has been stuck in the low 1.0% range. Despite softening inflation, the BOK expects it to pick up and gradually reach the 2.0% target level by the end of the year. On the demand side, the economy has continued its strong pace of growth on the back of a buoyant export sector and rising consumption. Despite slowing from a near four-year high in the third quarter of 2017, preliminary data showed annual GDP growth came in at a strong 3.0% in the fourth quarter.
Looking ahead, and in line with the policy direction highlighted at its previous meeting, the Bank emphasized it will continue implementing monetary policy with a focus on supporting economic growth, stabilizing inflation at its target and ensuring financial stability. The Bank will also closely monitor external risks, particularly the tightening of monetary policy by major countries and stronger U.S. trade protectionism, to help determine future policy adjustments. Nonetheless, the Bank made clear it will continue its accommodative policy stance, as it expects demand-side inflationary pressures to remain subdued in the near-term and the economy to continue its solid growth trajectory.
Korea Interest Rate Forecast
FocusEconomics Consensus Forecast panelists expect a gradual tightening of policy this year, with the base rate ending 2018 at 1.85%. In 2019, panelists see the policy rate rising to 2.03%.
Author: Javier Colato, Economist