Bank of Korea holds interest rate steady, lowers inflation rate projection

Bank of Korea holds interest rate steady, lowers inflation rate projection


The nation’s central bank stands pat on its
key rate once more. Economic growth was also held steady at three
precent. Kim Hyesung has more from the BOK’s first
meeting on monetary policy since its governor was reappointed last month. The Bank of Korea kept its growth forecast
for the local economy for 2018 at three percent, the same as its previous projection made in
January. But the bank lowered its inflation rate projection
by 0.1 percent. ““We slightly lowered the inflation rate
projection to 1.6 percent for this year. First quarter consumer price inflation came
in lower than expected, in the low one percent range. This was mainly due to a drop in livestock
prices, and the slower pace of increase in global oil prices.” With first quarter inflation rate at 1.3 percent,
below the bank’s target of two percent the BOK unanimously decided to keep its key rate
unchanged at one-and-a-half percent Thursday. This decision follows two freezes in January
and February, after the bank’s first rate hike in over six years in November. The Korean won has strengthened against the
U.S. dollar, hitting a more than a three-year high against the U.S. dollar last week, which
further weakened inflationary pressure by suppressing import prices. Domestically, household debt concerns and
the high unemployment rate also led the Bank to hold its key rate. “Despite concerns that the U.S.-Korea interest
rate reverse following the Fed’s rate hike in March could lead to capital outflow, Korea
actually saw its foreign investment in local securities go up over the last one month period. A one percent rate difference is unlikely
to lead to a huge capital outflow given Korea’s economic fundamentals and the won-to-dollar
exchange rate. With a low inflation rate and high unemployment
right now, the central bank is not expected to raise rates until the latter half of this
year.” Externally, the governor said the global economy
is continuing its robust growth, but said concerns about the U.S.-China trade spat have
led to recent volatility in global financial markets,
and that major advanced countries’ pace of monetary policy normalization adds uncertainty. The Bank said it will closely monitor the
country’s inflation rate, trade environment and geopolitical risks when setting its monetary
policies. Kim Hyesung, Arirang News.

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