South korea Central Bank Statement

Author: | Published: 5 Sep 2017
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Korean economic growth has been picking up this year, as the global economic recovery has strengthened. Although the recovery in private consumption remains limited, exports are emerging from their sluggishness seen until last year and showing sharply accelerated growth, while investment is also recovering rapidly.

As these trends continue going forward, a GDP growth rate in the upper 2% range is expected for this year. There are however considerable uncertainties about the projected growth path, related to the monetary policy normalisation by the US Federal Reserve, to strengthening trade protectionism, and to geopolitical risks.

Consumer price inflation, after having remained low for some time, has risen to the 2% target level recently, as the prices of petroleum and agricultural, livestock and fisheries products have been higher than in 2016. Going forward, consumer price inflation is expected to generally remain at around 2%.

The financial markets have shown stability overall this year, with stock prices rising and long-term market interest rates fluctuating within a relatively narrow range. Despite North Korea-related geopolitical risks the Korean won appreciated by 5.6% against the US dollar during the first half of this year, due mainly to the weakening of the dollar as well as the buoyancy of exports.

The Bank of Korea has supported the economic recovery through conduct of an accommodative monetary policy, with its policy rate having been held at a low level of 1.25% since June 2016. And despite the recent pickup in economic growth the Bank will maintain its accommodative monetary policy stance for the time being, in view of the continuing high uncertainties as to the growth path and the not high inflationary pressures on the demand side.

However, if economic conditions show more clear improvements, with the economic recovery being sustained for example, then the Bank of Korea may need to adjust the degree of its monetary policy accommodation.

The Bank of Korea will in addition step up its efforts to maintain financial stability. At this stage, the Bank assesses that household debt is unlikely to give rise to systemic risks. However, the Bank is keeping in mind that the pace of household debt growth is rapid and the household debt level high as well, and that these factors could work as major potential sources of risk in the Korean economy. The Bank will also contribute to the formulation of effective measures for dealing with such risks as necessary, in close consultation with the government and the supervisory authorities.




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