Today's rate hike by Bank of Korea (BOK) - which was expected - is the first increase in the bank's policy rate since June 2011.
It is also the first change in BOK's rates since June 2016 when it wrapped up an easing cycle that began over 5 years earlier, in July 2012.
Looking ahead, BOK said it would carefully look at whether "it is necessary to adjust its accommodative monetary policy stance further, while closely checking future economic growth and inflation trends."
The Bank of Korea issued the following statement:
"The Monetary Policy Board of the Bank of Korea
decided today to raise the Base Rate by 25 basis points, from 1.25% to 1.50%,
for the intermeeting period.
Based
on currently available information the Board considers that the global economic
recovery has continued to expand. The global financial markets have shown
stable movements, with stock prices displaying moderate upward trends for
example. Looking ahead the Board sees the global economic recovery as likely to
be affected by factors such as the paces of monetary policy normalization in
major countries, the directions of the US government's economic policies, and
the movements toward spreading trade protectionism.
The
Board judges that the solid trend of domestic economic growth has continued, as
private consumption has improved moderately and investment has shown favorable
movements, while exports have sustained their high rate of increase. The trend
of improvement in employment conditions has shown signs of weakening somewhat,
with the pace of increase in the number of persons employed in the service
sector having slowed for example. Going forward, the Board expects that
domestic economic growth will be slightly above the rate projected in October,
as domestic demand activities including consumption and facilities investment
continue their trends of moderate improvement, and exports also sustain their
buoyancy thanks largely to the pickup in the global economic recovery and the
improved conditions related to trade with China.
Consumer price
inflation has slowed to the upper-1% level, in consequence mainly of declines
in the extents of increase in the prices of agricultural, livestock and
fisheries products and the disappearance of the base effect from the reduction
of electricity fees last year. Core inflation (with food and energy product
prices excluded from the CPI) has been rising slightly in the mid-1% range, and
the rate of inflation expected by the general public has stayed at the mid-2%
level. Looking ahead the Board expects that consumer price inflation will be in
the mid-1% range for some time and then gradually approach the target level.
Core inflation will also rise gradually.
Although long-term
market interest rates have risen, due to changes in expectations related to
monetary policy, the domestic financial markets have shown generally stable
movements, with stock prices continuing to rise in line for example with
improvements in corporate performances. The Korean won-US dollar exchange rate
has meanwhile fallen, owing chiefly to the strengthening recovery of the
domestic economy. The rate of increase in household lending is slowing
somewhat, but is still sustaining a high level compared to past years. Housing
sales prices have risen faster in some parts of Seoul and its surrounding
areas, although their uptrend has in general slowed since the government's
announcement of housing market stabilization measures.
Looking ahead, the
Board will conduct monetary policy so as to ensure that the recovery of
economic growth continues and consumer price inflation can be stabilized at the
target level over a medium-term horizon, while paying attention to financial
stability. As it is forecast that inflationary pressures on the demand side
will not be high for the time being, while the domestic economy is expected to
continue its solid growth, the Board will maintain its accommodative monetary
policy stance. In this process it will judge carefully whether it is necessary
to adjust its accommodative monetary policy stance further, while closely
checking future economic growth and inflation trends. It will also carefully
monitor any changes in the monetary policies of major countries, conditions
related to trade with major countries, the trend of increase in household debt,
and geopolitical risks."
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