BOK rate hike-full text
Full text of BOK statement on monetary policy decision in August
SEOUL, Aug. 25 (Yonhap) -- The following is the full text of the Bank of Korea's statement on its monetary policy decision. The central bank's monetary policy board voted Thursday to raise the key interest rate by quater percentage point to 2.5 percent, the seventh rate increase since August last year.
The Board judges that the policy response to prevent the entrenchment of high inflation should be continued as inflationary pressures and inflation expectations have remained high, although economic downside risks have increased at home and abroad.
Currently available information suggests that global economic downside risks have increased, affected by the prolonged Ukraine crisis and significant policy rate hikes in major advanced countries, while inflation has remained high. In global financial markets, major price variables have fluctuated significantly due to changes in expectations for the pace of the U.S. Federal Reserve's policy rate hikes. Looking ahead, the Board sees global economic growth and global financial markets as likely to be affected largely by the movements of international commodity prices and global inflation, economic indicators and monetary policy changes in major countries, and geopolitical risks.
Downside risks to the Korean economy have increased with the slowdown in exports owing to weakening of economic growth in major countries, while private consumption has continued to recover. Labor market conditions have continued to improve, with the year-on-year increase in the number of persons employed remaining high. Going forward, GDP growth is projected to be 2.6 percent in 2022 and 2.1 percent in 2023, below the May forecast of 2.7 percent in 2022 and 2.4 percent in 2023, as export growth has slowed.
Consumer price inflation has remained high in the 6 percent range due to the accelerating price increases in agricultural and personal services, although increases in the prices of petroleum products have somewhat moderated. Core inflation (excluding changes in food and energy prices from the CPI) and the inflation expectations of the general public have stayed high in the upper-3 percent range and the 4 percent range, respectively. Looking ahead, it is forecast that consumer price inflation could decline due to the decrease in global oil prices but will remain high in the 5-6 percent range for a considerable time as core inflation continues to rise. Consumer price inflation is projected to be 5.2 percent in 2022 and 3.7 percent in 2023, substantially above the May forecast of 4.5 percent in 2022 and 2.9 percent in 2023.
Volatility in domestic financial markets has increased, influenced by global financial market movements. Long-term market interest rates have rebounded after a considerable decline, and the Korean won to U.S. dollar exchange rate has risen significantly due to U.S. dollar strengthening. Household loans have decreased slightly and housing prices have shifted to a decrease.
The Board will continue to conduct monetary policy in order to stabilize consumer price inflation at the target level over a medium-term horizon as it monitors economic growth, while paying attention to financial stability. The Board sees continued rate hikes as warranted, as inflation is expected to remain high, substantially above the target level, despite the increase in economic downside risks and underlying high uncertainties surrounding domestic and external conditions. In this process the Board will determine the size and pace of further increases of the Base Rate while thoroughly assessing the degree of persistence of high inflation, the pace of growth, financial stability conditions such as capital flows, monetary policy changes in major countries, and geopolitical risks.
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