By CentralBankNews.info
South Korea’s central bank left its base rate steady at 1.50 percent, as expected, but said it expects that inflation will “fall considerably short” of its inflation target due to a further fall in oil prices and the disappearance of the impact of a rise in cigarette prices from the inflation rate.
The Bank of Korea (BOK), which cut its rate by 50 basis points in 2015, also repeated its view held in recent months that it would closely monitor rising household debt, along with any changes in U.S. monetary policy, China’s economic and financial conditions and movements in capital flows.
The BOK acknowledged that growth in emerging markets, including China, had continued to slow hile the U.S. economy was continuing to expand and “the modest improvements in the euro area have continued,” which means that the global economy will maintain its “moderate” recovery.
Korea’s economy is being helped by a recovery of domestic demand while the trend of declining exports persists. In October the BOK forecast that Gross Domestic Product would rise by 3.2 percent this year while inflation would rise by 1.7 percent.
In the third quarter of this year, South Korea’s GDP rose by an annual 2.7 percent, up from 2.2 percent in the previous quarter while inflation in December rose by 1.3 percent from 1.0 percent in November, below its 2.0 percent target.
“Looking ahead the Board forecast that consumer price inflation will fall considerably short of the 2% inflation target for the time being, owing mainly to the disappearance of the effect from the cigarette price hike and to the recent further declines in international oil prices,” the BOK said.
The Bank of Korea issued the following statement:
“The Monetary Policy Board of the Bank of Korea decided today to leave the Base Rate unchanged at 1.50% for the intermeeting period.