BOK to keep restrictive monetary policy 'for considerable period of time'
Bank of Korea Governor Rhee Chang-yong answers questions from reporters during a press conference in Seoul after freezing the key rate, Feb. 23. Joint Press Corps-Yonhap
The Bank of Korea (BOK) said Thursday it will keep the current restrictive monetary policy stance "for a considerable period of time" and determine whether to push for additional rate hikes down the road with priority placed on price stability.
In a policy brief to lawmakers, the central bank voiced worries that uncertainty remains high over how fast inflation is easing, saying things depend much on external factors, such as China's economic reopening, the ongoing war in Ukraine and the trajectory of monetary policy in the United States.
"Although domestic economic growth is expected to decelerate, inflation is expected to remain high and well above the target level, and uncertainty in the policy environment is high, so it is necessary to continue the tightening stance for a considerable period of time with a focus on price stability to determine the need for further hikes," the BOK said.
"There is a great deal of uncertainty about the pace of future domestic inflation and the timing of price growth moving toward the inflation target," it added. "China's resumption of economic activity, the war in Ukraine and the U.S. Fed's monetary policy are also likely to contribute to the slowdown in domestic inflation."
Last month, the BOK left its policy interest rate unchanged at 3.5 percent, the first freeze after seven straight months of increases amid growing concerns over an economic slowdown. The central bank also lowered its growth outlook for this year to 1.6 percent from a 1.7 percent rise predicted three months earlier.
Despite expectations that the freeze might represent an end to about 1 1/2 years of a monetary tightening cycle aimed at curbing fast-rising inflation pressure stemming from ultralow borrowing costs aimed at bolstering the pandemic-hit economy.
Inflation has showed signs of easing recently, with consumer prices rising 4.8 percent last month from a year earlier. It was the first time in 10 months that consumer price growth fell to the 4 percent range. It still far exceeds the BOK's midterm target range of 2 percent.
"Supply-side inflationary pressures, such as international oil prices and grain prices, have continued to ease," the BOK said in the policy brief. "(But) domestic consumer price inflation has slowed more slowly than in major advanced economies due to increases in utility bills, such as electricity and gas prices, and the base effect caused by fuel tax adjustments." (Yonhap)