SEOUL, Oct. 22 (Yonhap) -- The following is the full text of a statement by the Bank of Korea (BOK) on its monetary policy decision Thursday, where the central bank held the key rate unchanged at 3 percent at its rate-setting meeting in Seoul.
The Monetary Policy Board of the Bank of Korea decided today to leave the Base Rate unchanged at 3.00 percent for the intermeeting period. The domestic economy maintained strong growth led by exports and investment, inflation remains high at around 3 percent, and financial stability risks persist. However, given the growing uncertainties surrounding the Middle East conflict and monetary and fiscal policies in major economies, the Board judged that it would be necessary to assess developments in both domestic and external risk factors and the effects of the two prior rate hikes while maintaining the current level of the Base Rate.
The currently available information suggests that the global economy is expected to continue its favorable growth trend driven by robust AI investment, despite intensified tensions in the Middle East, while inflation is projected to remain elevated for some time due to the increases in energy prices and supply chain constraints. In global financial markets, long-term government bond yields rose significantly due to increases in inflation, heightened expectations of rate hikes in major economies, and concerns over fiscal soundness and the supply of AI-related corporate bonds, and the U.S. dollar also strengthened. Stock price volatility increased reflecting concerns over the slowdown in AI investment, despite continued strong growth in corporate earnings. Looking ahead, the global economy and financial markets will be affected by developments in the Middle East, by the AI investment outlook, and by changes in monetary and fiscal policies in major economies, including in the U.S.
The domestic economy continued to grow at a higher than expected pace, led by strong exports and investment. The number of persons employed continued to increase moderately, mainly in the services sector. Going forward, exports and investment are expected to sustain their high growth, driven by a strong semiconductor sector, while the recovery in consumption is likely to gradually accelerate, supported by improving income conditions. Accordingly, the growth rates for this year and next year are expected to be considerably higher than the August forecasts of 3.3 percent and 2.9 percent, respectively. There remain uncertainties along the future path of economic growth related to developments in the Middle East, the degree of expansion in the semiconductor sector and its spillover onto domestic demand, and changes in domestic and global financial conditions.
Both consumer price inflation and core inflation (excluding food and energy) continued to increase at high rates in the upper 2 percent range in September, at 2.9 percent and 2.8 percent, respectively. Short-term inflation expectations among the general public remained in the upper 2 percent range. Looking ahead, inflation is expected to remain above the target level for a considerable time as the pass-through of elevated cost pressures persists and as demand-side pressures also gradually strengthen. Consumer price inflation and core inflation for this year are expected to be generally consistent with the August forecasts of 2.7 percent and 2.5 percent, respectively, while those for next year are expected to exceed the previous forecasts of 2.3 percent and 2.5 percent, respectively. The future path of inflation is judged to be subject to high uncertainties related to movements in global oil prices and the exchange rate, to the pace of the recovery in domestic demand, and to the extent of the broadening of the increase in wages.
In financial and foreign exchange markets, volatility in major price variables increased. Despite the U.S. dollar's strength, the Korean won to U.S. dollar exchange rate fell significantly, as foreign exchange market supply-demand conditions improved, supported by a large current account surplus. Korean Treasury bond yields rose considerably, driven by escalated tensions in the Middle East, increases in global oil prices, and surges in government bond yields in major economies, but much of the increase was subsequently reversed due to expectations of improved supply-demand conditions for Korean Treasury bonds. Stock prices fell sharply due to concerns over slowing profitability in the semiconductor sector. Household loans turned to a decline as other loans recorded net repayments, while housing-related loans continued to increase and the pace of increase in housing prices in Seoul and its surrounding areas accelerated again.
The Board will continue to conduct monetary policy in order to stabilize consumer price inflation at the target level over the medium-term horizon as it monitors economic growth while paying attention to financial stability. The domestic economy is expected to maintain its high growth rate, supported by continued strong exports and investment, and by a strengthening recovery in consumption, while inflation is projected to remain above the target level for a considerable time, driven by the pass-through of accumulated cost pressures and by increasing demand-side pressures. Regarding financial stability, it is necessary to continue to pay attention to the financial imbalance risks related to the housing market in Seoul and its surrounding areas and to household debt. Therefore, the Board will decide the timing and pace of further increases in the Base Rate while assessing trends in inflation and the domestic economy, as well as financial stability.
All seven Monetary Policy Board members unanimously supported the decision to keep the Base Rate unchanged.
(END)