August 31, 2018 / 3:28 AM / 3 months ago

UPDATE 1-Bank of Korea statement on policy decision

(Adds new recent economic developments commentary from the Bank of Korea)

SEOUL, Aug 31 (Reuters) - The Bank of Korea left its base rate unchanged on Friday for a sixth straight monetary policy meeting, as a fragile job market and weak inflation held policymakers back from tightening interest rates.

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RECENT ECONOMIC DEVELOPMENTS

“The Korean economy has continued its trend of solid growth. Exports remain buoyant, on the back of the ongoing growth in the global economy, and private consumption is also rising moderately. However facilities and construction investment has sustained their adjustments, and employment conditions became more sluggish.”

“Going forward domestic economic growth is expected to sustain its trend at a potential growth rate, generally in accord with the path forecast in July. Factors such as the government’s policies to enhance domestic demand and expansions in investment expenditures by major conglomerates are among the potential upside risks to growth, while a spread of the financial unrest in emerging countries, a deepening of the global trade disputes, a delay in improvements in employment conditions, and a worsening of consumer sentiment are some of the downside ones. Consumer price inflation is expected to remain at its current level for some time, before gradually picking up. It is forecast that the current account will remain in surplus.”

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 global economy has continued its robust growth. In the global financial markets, some emerging market economies with weak external soundness have seen unease again, including capital outflows and sharp depreciations of their currencies. Looking ahead the Board sees global economic growth as likely to be affected by factors such as the movements toward spreading trade protectionism, the paces of monetary policy normalization in major countries, and the directions of the US government’s economic policies.”

“The Board judges that the solid trend of domestic economic growth has continued, as consumption and exports have shown favorable movements although the adjustments in facilities and construction investment have persisted. Employment conditions have become more sluggish, with the extent of increase in the number of persons employed having lessened significantly. Going forward the Board expects domestic economic growth to be generally consistent with the path projected in July and sustain a rate at its potential level. It anticipates that investment will slow but that the trend of steady increase in consumption will continue, and that exports will also sustain their favorable movements thanks to the buoyancy of the global economy.”

“Consumer price inflation has remained at the mid-1% level as the increases in service fees and agricultural product prices have slowed, despite the accelerating pace of increase in the prices of petroleum products. Core inflation (with food and energy product prices excluded from the CPI) has fallen to the 1% level, and the rate of inflation expected by the general public has been in the mid- to upper-2 percent range. Looking ahead it is forecast that consumer price inflation, after remaining in the mid-1 percent range for some time, will pick up and gradually approach the target level. Core inflation will also gradually rise.”

“The domestic financial markets have been generally stable. Long-term market interest rates have fallen, affected by the financial unease in some emerging market economies and the sluggishness of employment. Stock prices had declined, due mainly to concerns about the US-China trade dispute, but have since rebounded as these concerns have eased somewhat. The Korean won-US dollar exchange rate has fluctuated in line with changes in the value of the dollar globally. Household lending has sustained its higher rate of expansion than in past years, although the amount of its expansion has lessened somewhat. Housing sales prices have remained steady overall, but have risen rapidly 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 conditions related to trade with major countries, any changes in the monetary policies of major countries, financial and economic conditions in emerging market economies, the trend of increase in household debt, and geopolitical risks.”

Reporting by Cynthia Kim and Hayoung Choi;

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