Korea Monetary Policy January 2017

Korea

Korea: BoK stays put in January and maintains easy stance

January 13, 2017

At its first monetary policy meeting of 2017 on 13 January, the Bank of Korea (BoK) announced its decision to maintain the base rate unchanged at 1.25%, a decision in line with market expectations. The BoK had lowered interest rates by 25 basis points in June 2016 in what it had described as a preemptive move and has since refrained from making any further changes to the rate.

In its accompanying statement, the Central Bank said that a gradual improvement in global economic activity is ongoing, propelled by the U.S. economy and some emerging economies. However, it emphasized its concerns related to the direction of economic policy in the U.S. under the new Trump administration and sluggish domestic growth.

Despite an expected gradual increase in global oil prices, the BoK anticipates a low inflationary environment owing to sluggish domestic demand. In addition, the Bank is continuing to factor in the impact of domestic corporate restructuring on growth. Against this backdrop, the Central Bank stated that it will maintain its easy stance of monetary accommodation, which is a new form of forward guidance that the Monetary Policy Board incorporated in its January statement. It is expected that the Central Bank will maintain a dovish stance in the coming months and yet refrain from cutting the interest rate further.

Against a backdrop of global uncertainties and concerns about the domestic political turmoil, some of our analysts still have expectations for further BOK easing toward the end of this year. Some panelists project that the policy rate will be cut further to 1.00% at the last meeting of the year. On average, FocusEconomics Consensus Forecast panelists expect the base rate to end 2017 at 1.05%. In 2018, analysts see the Bank maintaining its monetary stance and expect the base rate to end the year at 1.03%.


Author:, Senior Economist

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Korea Monetary Policy January 2017

Note: BoK Base Rate in %.
Source: Bank of Korea (BoK).


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