February 27, 2018 / 1:58 AM / in 3 months

TEXT-Bank of Korea statement on its policy decision

SEOUL, Feb 27 (Reuters) - Following is the full text of the statements released by the Bank of Korea in English after the central bank held its key interest rate steady at 1.50 percent on Tuesday, as expected, as it monitors the effects of its November hike.

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MONETARY POLICY DECISION

The Monetary Policy Board of the Bank of Korea decided today to leave the Base Rate unchanged at 1.50 percent for the intermeeting period.

Based on currently available information the Board considers that the acceleration in global economic growth has continued.

Volatility in the global financial markets has increased substantially, with government bond yields rising and stock prices falling in line mainly with strengthening expectations of monetary policy normalizations in major countries.

Looking ahead the Board sees global economic growth as likely to be affected by factors such as the paces of monetary policy normalization in major countries, the directions of the U.S. 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 exports are sustaining their buoyancy and consumption and facilities investment have shown favorable movements, although construction investment has declined. The trend of improvement in employment conditions appears to have remained moderate, even though the extent of increase in the number of persons employed accelerated in January owing to temporary factors.

Going forward the Board expects domestic economic growth to be generally consistent with the path projected in January. It anticipates that investment will slow, but that the trend of steady increase in consumption will continue, due in large part to improvements in household income conditions, and that exports will also sustain their favorable movements thanks to the buoyancy of the global economy.

Consumer price inflation has slowed to the 1 percent level recently, in consequence mainly of declines in the prices of livestock products and of a reduction in the extent of increase in personal service fees. Core inflation (with food and energy product prices excluded from the CPI) has fallen to the low 1 percent range, and the rate of inflation expected by the general public has remained at the mid-2 percent level. Looking ahead it is forecast that consumer price inflation, after remaining in the low- to mid-1 percent range for some time, will pick up and gradually approach the target level from the second half of this year. Core inflation will also gradually rise.

In the domestic financial markets the volatility of price variables has expanded considerably, in reflection of global financial market movements. Long-term market interest rates have risen, stock prices have declined and the Korean won-US dollar exchange rate has fallen, after having previously increased.

Household lending has shown a higher rate of expansion than in past years, although the amount of its expansion has continued to decline. Housing sales prices have shown low rates of increase overall, but have risen faster in some parts of Seoul and its surrounding areas.

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.

CURRENT ECONOMIC DEVELOPMENTS IN KOREA

The Korean economy is sustaining its trend of solid growth. Consumption is showing a moderate improvement, while exports continue their trend of robust increase supported by the ongoing global economic recovery. However, growth in facilities investment is slowing from its high rate seen last year, and construction investment continues its phase of adjustment.

Going forward GDP growth is expected to be generally in accord with the path projected in January, as exports sustain their buoyancy and consumption also shows a steady trend of increase, although the growth in investment is foreseen slowing. Factors such as a strengthening of global economic growth and improvements in the trade environment vis-à-vis China are among the potential upside risks to growth, while a strengthening of US protectionist trade policies, accelerated monetary policy normalizations in major countries, and the restructuring of an automobile company are among the downside ones. It is forecast that consumer price inflation will remain low for the time being, after which it will gradually rise to approach its target level. The current account is expected to remain in surplus. (Reporting by Cynthia Kim and Christine Kim)

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