MNI REVIEW: BOK Rates Unchanged; Will Act To Support Economy

The Bank of Korea kept monetary policy unchanged Thursday, maintaining the Base Rate at the historical low of 0.5%, noting the economy is showing some domestic bright spots.

"Economic growth in Korea has remained sluggish. Although the decline in exports has moderated a bit, the improvement in private consumption has weakened," the Bank said in a statement published alongside the decision.

Policymakers said they will continue to conduct monetary policy "in order to support the economy and stabilize consumer price inflation at the target level over a medium-term horizon, while paying attention to financial stability."

"As economic growth is expected to be sluggish and inflationary pressures on the demand side are forecast to remain weak due to the Covid-19 pandemic, the Board will maintain its accommodative monetary policy stance," the statement added.

The decision had been widely expected, as seen in MNI's preview published Monday

Looking forward, the BOK said the domestic recovery "is likely to be slower than previously forecast, largely due to the domestic resurgence of Covid-19. In the Board's central projection, GDP growth falls to slightly below -1% this year, considerably lower than the May forecast of -0.2%. Uncertainties around the future path of GDP growth are also judged to be very high."

In the Board's central projection, GDP growth falls to slightly below -1% this year, considerably lower than the May forecast of -0.2.

Domestic financial markets have been generally stable owing to decreased volatility in global financial markets, the central bank judged, another sign of signs of recovery.

OVERSEAS ECONOMIES

On overseas economies, the BOK said "the Board sees global economic growth and global financial markets as likely to be affected largely by the evolution of the pandemic, as well as by the effects of national policy responses."

On inflation rate, the bank said, "It is forecast that consumer price inflation and core inflation will run at the mid-0% level this year, reflecting prolonged effects from the drop in global oil prices and weak demand-side inflationary pressures."

"The rate of household loan growth has risen, and housing prices have continued to increase in all parts of the country," indicating that some members continued to be worried about financial imbalances caused by the easy policy..

The next policy-setting meeting is scheduled for October 14.