[Full Text] Bank of Korea Monetary Policy Committee April Monetary Policy Direction

[Asia Economy Reporter Jang Sehee] The Bank of Korea kept the base interest rate unchanged at 0.75% on the 9th. Since it held an extraordinary Monetary Policy Committee meeting last month and implemented a big cut by lowering the base rate by 0.5 percentage points, it means that the bank intends to observe the effects of the monetary policy. There is also an analysis that further rate cuts are difficult considering the effective lower bound of the interest rate.

The following is the full text of the monetary policy direction

The Monetary Policy Committee decided to maintain the Bank of Korea base interest rate at the current level (0.75%) until the next monetary policy direction decision and operate monetary policy accordingly.

The global economy has been significantly contracted due to the worldwide spread of COVID-19. In international financial markets, concerns about recession, a sharp drop in international oil prices, and other factors caused major countries' stock prices to fall sharply, while government bond yields and exchange rates fluctuated wildly, greatly increasing the volatility of price variables. Going forward, the global economy and international financial markets are expected to be influenced by the extent of COVID-19 spread, each country's policy responses, and their ripple effects.

The domestic economy is judged to have significantly slowed its growth momentum. Consumption sharply decreased, facility investment recovery was constrained, construction investment adjustments continued, and exports slightly declined. Employment conditions showed a high increase in the number of employed persons until February, but temporary layoffs increased as economic activity contracted. The GDP growth rate for this year is expected to fall significantly short of the February forecast (2.1%), and the uncertainty of the growth outlook path is also considered very high.

The consumer price inflation rate has dropped to around 1% due to a reduction in the rise of industrial product prices. The core inflation rate (excluding food and energy) slightly declined from the mid-0% range, and the general public's expected inflation rate remained in the high 1% range. Going forward, the consumer price inflation rate and core inflation rate are expected to fall significantly below the February forecast (1.0% and 0.7%, respectively) due to the expanded impact of falling international oil prices and weakening demand-side pressures.

In the financial market, stock prices fell sharply influenced by the spread of COVID-19 and increased volatility in international financial markets. The won/dollar exchange rate rose sharply but declined after the Korea-US currency swap agreement, and long-term market interest rates fluctuated around the low 1% range. Household loans increased, and housing prices' upward trend slowed since mid-March.

The Monetary Policy Committee will continue to operate monetary policy to ensure that growth recovery continues and that inflation stabilizes at the target level over the medium term, while paying attention to financial stability. As the ripple effects of the global spread of COVID-19 gradually expand, monetary policy will be operated in a accommodative manner to mitigate downside risks to the macroeconomy and volatility in financial markets. In this process, the Committee will closely monitor the extent of COVID-19 spread, its impact on domestic finance and economy, and changes in financial stability conditions to determine whether adjustments to the degree of accommodation are necessary.