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Bank of Korea Governor Rhee Chang-yong Friday maintained his cautious view on the outlook for inflation, following the board's unanimous decision to hold the policy rate at 3.5%, noting a restrictive monetary policy stance will be required for a sufficiently long period of time to return inflation to its 2% target.
The BOK has held the policy rate at 3.5% since January 2023. Friday's call was largely expected. (See MNI BOK WATCH: Board To Consider Hold At 3.5%, Inflation In Focus)
“The Board will continue to conduct monetary policy in order to stabilise consumer price inflation at the target level over the medium-term horizon as it monitors economic growth, while paying attention to financial stability,” the BOK said in a statement.
STICKY INFLATION
CPI rose 3.1% y/y in March, unchanged from 3.1% in February. (See chart) Prices for crude oil-linked goods rose 1.2% for the first y/y rise since January 2023.
Governor Rhee noted CPI will likely lower gradually, but heightened uncertainty over the inflation outlook existed thanks to geopolitical risk in the Middle East, movement in global oil prices and trends in agricultural product prices.
The BOK warned CPI had remained flat at 3.1% in March due to increases in agricultural product and global oil prices. Short-term inflation expectations among the general public have also risen to 3.2%, the Bank noted.
“Looking ahead, it is forecast that core inflation will continue its slowing trend, which is consistent with the path projected in February, and it is likely to slow to the 2% level at the end of the year,” the BOK explained.
The bank expects domestic economic growth to continue improving, mainly driven by exports. (See chart)
“Going forward, export growth is likely to increase greater than expected, supported by buoyancy in the IT industry, amid a modest recovery in consumption," the BOK explained, adding GDP growth in 2024 will likely fall in line with, or higher than the February forecast of 2.1%.
The board will next meet May 23.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.