By Kim Jae-kyoung
Staff Reporter

The central bank said Thursday that it widened its 2010-to-2012 inflation target range to 2 to 4 percent from the existing 2.5 percent to 3.5 percent in order to manage monetary policy in a more flexible manner.

The decision came at the policy-setting Monetary Policy Committee meeting held at the Bank of Korea (BOK). The bank sought to keep consumer inflation between 2.5 and 3.5 percent from 2007 to 2009.

The move comes as economic conditions both at home and abroad are expected to become more volatile in the coming years due to aftershocks from the global financial crisis.

The central bank said that the current margin of plus or minus 0.5 percent is too narrow, given that consumer prices have turned more volatile.

``We decided to expand the target range after taking into consideration various factors, including the recent movement of consumer prices and cases from other major countries,'' a BOK economist said.

``In the years to come, chances are that price volatility will further widen in line with rising prices of oil and raw materials. In addition, economic uncertainties are likely to linger for a while,'' he added.

Analysts said that with the expansion in the inflation target band, the central bank will be able to manage monetary policy more flexibly to support an economic recovery, noting that the change indicates that the central bank will focus more on economic recovery than on inflation control.

``The BOK has argued that widening the target range was necessary for flexible monetary policy because cost-push factors, such as oil, food prices and the won, often cause high volatility in Korea's inflation,'' Nomura Securities economist Kwon Young-sun said.

``However, we think this argument misses the mark given that such volatility is short-term. We see the widened target range as a comfort zone for policymakers,'' he added. ``Following the BOK's decision to raise the upper limit of its inflation target, we are pushing back our first rate-hike call to June from January.''

The central bank stressed that the widened target range does not necessarily mean a change in its monetary policy stance, noting that the median inflation target remains intact at 3 percent.

The BOK kept its key rate untouched at the record low of 2 percent in November for the ninth consecutive month to support an economic recovery. It slashed the rate by a total of 3.25 percentage points between October 2008 and February. The central bank is widely expected to raise borrowing costs as early as January.

kjk@koreatimes.co.kr