But the Bank of Korea (BOK), which cut its rate by 50 basis points last year, repeated its view from last month that the domestic economy will continue to recover though uncertainties surrounding the growth path have increased.
The BOK also repeated that it is closely monitoring external risks, including changes in the monetary policies of major countries, the financial and economic conditions in China, movements in capital flows, geopolitical risks and the rise in household debt.
In January the BOK lowered its 2016 growth forecast to 3.0 percent from October's forecast of 3.2 percent but at that point the central bank governor said the cut in the forecast did not warrant an easing of monetary policy.
South Korea's economy grew by an annual rate of 3.0 percent in the fourth quarter of 2015, up from 2.7 percent in the third quarter and the BOK estimated full year growth of 2.6 percent.
Consumer price inflation in South Korea eased to 0.8 percent in January from 1.3 percent in December as the impact of higher cigarette prices dropped out of the comparison. Core inflation, which excludes agricultural and petroleum products, fell to 1.7 percent from 2.4 percent.
The BOK forecasts 2016 inflation of 1.4 percent, down from its previous forecast of 1.7 percent, and below its target of 2.0 percent.
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.
Based on currently
available information the Board considers that the trends of economic recovery
in the US and the euro area have weakened somewhat. Economic growth in emerging
market countries including China has meanwhile continued to slow. The Board
forecasts that the global economy will maintain its recovery going forward,
albeit at a moderate pace, centering around advanced economies such as the US,
but judges that it will be affected by factors such as financial and economic
conditions in China and other emerging market countries, international oil
price movements, and global financial market volatility.
Looking at the Korean
economy, the trend of decline in exports has expanded and the recovery of domestic
demand activities such as consumption has also shown signs of weakening
somewhat, while the sentiments of economic agents have been sluggish. On the
employment front, as the trend of increase in the number of persons employed
expanded in December, the employment-to-population ratio rose compared to that
in December the year before while the unemployment rate fell. The Board
forecasts that the domestic economy will continue its recovery going forward,
centering around domestic demand activities, but in view of external economic
conditions judges the uncertainties surrounding the growth path to have
increased.
Consumer price
inflation fell from 1.3% the month before to 0.8% in January, owing chiefly to the
disappearance of the effect of the cigarette price hike, and core inflation
excluding agricultural and petroleum product prices also fell to 1.7%, from
2.4% in December. Looking ahead the Board forecasts that consumer price
inflation will continue at a low level, due mainly to the declines in
international oil prices. In the housing market, the upward trends of sales and
leasehold deposit prices slowed in both Seoul and its surrounding areas and the
rest of the country.
In the domestic
financial markets, influenced by global stock market unrest and by foreigners’
continuing net sales of domestic securities, stock prices have fallen and the
Korean won has depreciated against the US dollar. The won has depreciated even more
against the Japanese yen than the US dollar, on the strengthening of the yen
due to investor preference for safe assets. Long-term market interest rates
have fallen, in response mainly to declines in interest rates in major
countries and to the movements of domestic economic and price indicators. Bank
household lending has sustained a trend of increase at a level substantially
exceeding that of recent years, led by mortgage loans.
Looking ahead, while
working to sustain the recovery of economic growth, the Board will conduct
monetary policy so as to maintain price stability over a medium-term horizon,
and pay attention to financial stability. In this process it will closely
monitor external risk factors such as any changes in the monetary policies of
major countries or in financial and economic conditions in China, the movements
of capital flows, geopolitical risks, and the trend of increase in household
debt."
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