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

The Bank of Korea Holds Base Rate Steady at 0.50% Amid Slower Economic Recovery and US Fed's Zero Interest Rate Policy
Reflecting Delayed Economic Recovery and US Fed's Zero Interest Rate Stance

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[Asia Economy Reporter Jang Sehee] The Bank of Korea kept the base interest rate unchanged at 0.50% per annum on the 16th. This decision reflects the delayed pace of economic recovery in the second half of the year and the Federal Reserve's (Fed) zero interest rate policy. Additionally, the government's determination to stabilize real estate prices and the effects of the third supplementary budget acted as factors preventing an interest rate cut.

The following is the full text of the monetary policy direction

The Monetary Policy Committee decided to maintain the Bank of Korea base rate at the current level (0.50%) until the next monetary policy direction decision and to operate monetary policy accordingly.

The global economy showed signs of some easing in economic contraction as economic activities gradually resumed despite the continued spread of COVID-19. In international financial markets, risk aversion eased due to expectations of economic recovery, leading to rising stock prices in major countries and a weakening of the US dollar, while government bond yields fluctuated slightly. Going forward, the global economy and international financial markets are expected to be influenced by the development of COVID-19 and the ripple effects of policy responses in each country.

Domestically, private consumption rebounded thanks to the easing of restrictions on economic activities and government support measures; however, exports continued to decline and construction investment adjusted, while facility investment recovery was constrained, resulting in a continued sluggish trend. Employment conditions remained poor, with a large decrease in the number of employed persons. Facility investment and construction investment are expected to show a gradual improvement, but the recovery of consumption and exports is anticipated to be somewhat slower than initially forecasted. The GDP growth rate for this year is expected to fall below the May forecast (-0.2%).

The consumer price inflation rate remained low around 0% due to declines in petroleum products and public service prices. The core inflation rate (excluding food and energy) also stayed in the low 0% range, and the general public's expected inflation rate remained at the mid-1% level. Going forward, the consumer price inflation rate and core inflation rate are expected to remain in the low 0% range due to the continued impact of falling international oil prices and low inflationary pressures from the demand side.

The financial market showed stability supported by reduced volatility in international financial markets. Stock prices rose, the won/dollar exchange rate fell significantly, and long-term market interest rates fluctuated within a narrow range. Household loans increased significantly compared to the previous month, and housing prices rose in both the Seoul metropolitan area and provincial regions.

The Monetary Policy Committee will continue to operate monetary policy with attention to financial stability while supporting the recovery of growth and ensuring that the inflation rate stabilizes at the target level in the medium term. Given the expected sluggish growth of the domestic economy due to the impact of COVID-19 and the low inflationary pressures from the demand side, the accommodative monetary policy stance will be maintained. In this process, the Committee will closely monitor the development of COVID-19, its impact on domestic and international finance and economy, changes in financial stability, and the ripple effects of past policy responses.