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

Expected 4% GDP Growth Rate This Year
Inflation to Remain High for the Time Being

[Asia Economy Reporter Jang Sehee] The Monetary Policy Committee of the Bank of Korea held a regular meeting on the 15th and decided to maintain the base interest rate at the current annual rate of 0.5%.

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 base rate at the current level (0.50%) until the next monetary policy direction decision.

The global economy has strengthened its recovery due to the expansion of vaccination in major countries and the easing of restrictions on economic activities. In the international financial market, stock prices continued to rise reflecting the economic recovery trend, and the US dollar showed strength; however, long-term government bond yields fell significantly due to the spread of COVID-19 variants. 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 continued a favorable recovery trend. Exports and facility investment remained strong, and private consumption showed signs of recovery. The employment situation continued to improve with a significant increase in the number of employed persons. Going forward, the domestic economy is expected to maintain strong exports and investment, while private consumption may temporarily slow due to the resurgence of COVID-19 but will resume recovery with supplementary budget execution. The GDP growth rate for this year is expected to be around 4%, as projected in May.

The consumer price inflation rate remained at a high level in the mid-2% range due to continued price increases in petroleum products and agricultural, livestock, and fishery products, as well as an expansion in service price increases. The core inflation rate (excluding food and energy) was in the low 1% range. The general public's expected inflation rate slightly increased to the low to mid-2% range. Going forward, the consumer price inflation rate is expected to exceed the May forecast path and remain in the low to mid-2% range for some time. The core inflation rate is expected to gradually rise to the mid-1% range.

In the financial market, stock prices and the won/dollar exchange rate rose influenced by movements in the international financial market. The 3-year government bond yield rose significantly, while the 10-year yield fell. Household loans continued to increase sharply, showing the largest increase in the first half of the year, and housing prices continued to rise strongly in both the metropolitan area and provinces.

The Monetary Policy Committee will continue to operate monetary policy with attention to financial stability while ensuring that the recovery in growth continues and that inflation stabilizes at the target level in the medium term. Although the domestic economy is expected to maintain its recovery and inflation is expected to remain high for some time, uncertainties related to the spread of COVID-19 remain, so the accommodative stance of monetary policy will be maintained. In this process, the Committee will closely monitor the development of COVID-19, changes in growth and inflation trends, and accumulated risks of financial imbalances to determine whether adjustments to the degree of accommodation are necessary.