[Full Text] Bank of Korea Monetary Policy Committee November Policy Direction: "Monitoring Household Loan Growth and Housing Price Increase"

Results of the Bank of Korea Monetary Policy Committee Meeting on the 26th

[Asia Economy Reporter Jang Sehee] The Monetary Policy Committee of the Bank of Korea decided on the 26th to maintain the base interest rate at the current 0.5% per annum. This decision was made to maintain an accommodative monetary stance amid concerns over the third resurgence of COVID-19. Additionally, it appears to consider the risks of rapid concentration in household loans and asset markets such as real estate and stocks.

The following is the full text of the monetary policy direction.

The Monetary Policy Committee decided to operate monetary policy by maintaining the Bank of Korea’s base interest rate at the current level (0.50%) until the next monetary policy direction decision.

The global economy continued its recovery trend, but the pace was slow due to the ongoing resurgence of COVID-19. In international financial markets, despite the resurgence of COVID-19, risk aversion eased due to expectations of vaccine development and improvements in economic indicators, leading to rises in major countries’ stock prices and government bond yields, while the US dollar weakened. Going forward, the global economy and international financial markets are expected to be influenced by the extent of COVID-19 resurgence, vaccine development status, policy responses of each country, and their ripple effects.

The domestic economy showed a gradual recovery. Private consumption showed a slow recovery trend due to the impact of the COVID-19 resurgence, and construction investment continued to adjust; however, facility investment showed signs of recovery, and exports maintained an improving trend. Employment conditions remained weak, with a continued sharp decline in the number of employed persons. Going forward, the domestic economy is expected to show a moderate recovery centered on exports and investment, but the uncertainty of the growth path is judged to be high. The gross domestic product (GDP) growth rate is expected to be in the low -1% range this year and around 3% next year.

The consumer price inflation rate fell to the low 0% range due to a sharp decline in public service prices. The core inflation rate (excluding food and energy) recorded a negative figure, and the general public’s expected inflation rate slightly declined from the high 1% range. Going forward, the consumer price inflation rate and core inflation rate are expected to remain in the low to mid 0% range for some time before gradually rising to around 1% next year.

The financial market was influenced by movements in international financial markets and improvements in economic indicators, with stock prices rising sharply, the won/dollar exchange rate falling significantly, and long-term market interest rates rising. Household loans increased, and housing prices continued to rise both in the metropolitan area and provinces.

The Monetary Policy Committee will 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. As the domestic economy is expected to recover moderately and inflationary pressures from the demand side are expected to remain low, the accommodative monetary policy stance will be maintained. In this process, the Committee will closely monitor the development of COVID-19 and its impact on finance and the economy, changes in financial stability such as the increase in household debt, and the ripple effects of past policy responses.