[Full Text] April Monetary Policy Direction Decision Statement

Caution on Capital Flows into Asset Markets and Increase in Household Debt

[Asia Economy Reporter Jang Sehee] The Monetary Policy Committee has decided to maintain the Bank of Korea's base interest rate at the current level (0.50%) until the next monetary policy direction decision.

The global economy has strengthened its recovery trend due to the implementation of major countries' economic stimulus measures and the expansion of vaccination. In the international financial market, expectations of economic recovery have increased, leading to rises in major countries' stock prices and government bond yields. Going forward, the global economy and international financial markets are expected to be influenced by the degree of COVID-19 resurgence, vaccine distribution status, policy responses of each country, and their ripple effects.

The domestic economy has somewhat expanded its recovery. Exports continued to perform well, facility investment maintained a steady recovery trend, and private consumption showed signs of easing sluggishness. The employment situation showed some improvement, with the number of employed persons turning to an increase. Going forward, the domestic economy is expected to continue its recovery centered on exports and investment, but uncertainties related to the pace of recovery are considered high. The GDP growth rate for this year is expected to exceed the level forecasted in February (3.0%).

The consumer price inflation rate rose to the mid-1% range due to increases in petroleum prices and continued upward trends in agricultural, livestock, and fishery product prices, while the core inflation rate (excluding food and energy) slightly increased within the mid-0% range. The general public's expected inflation rate rose to the low 2% range. Going forward, the consumer price inflation rate is expected to fluctuate around 2% for a while, exceeding the February forecast path, before slightly decreasing, and the core inflation rate is expected to gradually rise to the 1% range.

In the financial market, long-term market interest rates and stock prices rose influenced by movements in the international financial market and improvements in economic indicators. The won-dollar exchange rate slightly increased due to global dollar strength. Household loans continued a sharp increase, and housing prices maintained a high upward trend in both the metropolitan area and provinces.

The Monetary Policy Committee will operate monetary policy to support the recovery of growth and ensure that the inflation rate stabilizes at the target level in the medium term, while paying attention to financial stability.

Although the domestic economy's recovery is expected to gradually expand, uncertainties related to the development of COVID-19 remain high, and demand-side inflationary pressures are expected to be limited; therefore, the accommodative monetary policy stance will be maintained. In this process, the Committee will closely monitor the development of COVID-19, the ripple effects of past policy responses, and changes in financial stability conditions such as capital flows into asset markets and the accumulation of household debt.