Bank of Korea governor Lee Ju-yeol speaks at a press conference on the direction of monetary policy held at the Bank of Korea in Jung-gu, Seoul on the morning of the 25th. [사진=한국은행 제공]
The Bank of Korea Financial and Monetary Commission (hereinafter referred to as the Financial Services Commission) maintained its real gross domestic product (GDP) growth forecast this year at 3.0%. Although the domestic economy is showing a modest recovery, uncertainty in domestic demand arising from the re-proliferation of Corona 19 continues, and it is determined that we need to watch more. The benchmark interest rate, which is currently at the 0.5% level, is also to be maintained until the recovery of domestic demand appears. However, reflecting the domestic economic recovery, the consumer inflation rate raised it to 1.3%, 0.3 percentage points higher than expected in November last year.
On the 25th, the Bank of Korea’s Financial Services Commission held a meeting on the direction of monetary policy in the main building of the Bank of Korea in Jung-gu, Seoul, presided over by BOK Governor Lee Ju-yeol, and decided this year’s growth rate of 3.0%. This is the same number as the forecast released last November. The growth rate for next year was also maintained at 2.5%. Initially, among economic experts, there were many observations that the BOK will slightly increase the growth rate to reflect the recent strong exports. However, despite strong exports, the BOK did not raise its growth rate forecast as consumer sentiment continues to shrink amid a slower-than-expected improvement in income conditions due to the prolonged Corona 19.
However, there is a possibility that the future growth rate forecast will be raised. This is because the current growth rate forecast (3.0%) only reflects the government’s quarantine agency’s vaccine plan (the formation of collective immunity in November), and does not reflect the ‘4th disaster subsidy payment’, a factor that raises the growth rate. BOK Governor Lee Ju-yeol said, “The current growth rate forecast does not reflect the 4th disaster support payment, so it will be a factor in raising the growth rate when the disaster support fund is implemented.”
The KFTC also decided to maintain the standard interest rate, which is currently 0.5% per year. It is the sixth freeze following the regular meetings in July and August, October, November and January of last year. As there are currently high uncertainties such as the re-proliferation of Corona 19, the outbreak of a mutant virus, and vaccination, the KFTC is planning to continue its easing monetary policy until the economy enters the normal trajectory.
On the other hand, this year’s consumer inflation forecast was raised by 0.3 percentage points from 1.0% to 1.3%. This is a result of reflecting a rise in food prices due to worsening weather conditions and the spread of avian influenza (AI), an increase in international oil prices compared to last November, and improvement in the domestic economy. In its decision on the direction of monetary policy, the Financial Services Commission said, “This year’s consumer price increase rate is in the early mid- to mid-1% range, surpassing the forecast (1.0%) in November last year due to the rise of international oil prices and gradual economic improvement, and the core inflation rate is around 1%. It is expected.”
Seong Tae-yoon, a professor of economics at Yonsei University, said, “Even though exports showed a recovery trend, mainly face-to-face consumption uncertainty continues as the Corona 19 situation continues, so it is natural to freeze the growth rate forecast.” It reflects the economic situation, such as an increase in prices, centered on, and it is difficult to say that such an upward revision means economic fluctuations.”
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