Monetary Policy Decision

The Monetary Policy Board of the Bank of Korea decided today to raise the Base Rate by 25 basis points, from 3.25% to 3.50%. The Board judges that the additional 25 basis points hike is warranted to ensure price stability, as inflation still remains high and is projected to be above the target level for a considerable time, although the domestic economic growth rate is expected to be below the November forecast.

Currently available information suggests that the global economic slowdown has continued, affected by ongoing high inflation and the resultant policy rate hikes in major countries, although inflation is starting to slow due to the decline in global oil prices. In global financial markets, the US dollar has continued to weaken due to the adjustment to the pace of the US Federal Reserve's policy rate hikes and prospects of strengthening monetary tightening, such as at the European Central Bank. Looking ahead, the Board sees global economic growth and global financial markets as likely to be affected largely by the pace of global inflation slowdown, monetary policy changes in major countries and US dollar trends, developments in the Chinese economy after the easing of its COVID-19 restriction policies, and geopolitical risks.

Domestic economic growth has continued to slow with exports decreasing significantly and the recovery in private consumption weakening. Labor market conditions have generally continued to be favorable, but the decline in the increase in the number of persons employed has continued due to the economic slowdown. Going forward, domestic economic growth is expected to weaken, affected by the global economic slowdown and the increase in interest rates, and GDP growth for this year will be below the November forecast of 1.7%. As for the economic outlook, uncertainties regarding the pace of recovery in the Chinese economy and an economic slowdown in major countries are both judged to be high.

Consumer price inflation has remained high at 5.0% in December driven by accelerating price increases in processed food products, with the continuing effects of electricity and gas fee hikes, although increases in the price of petroleum products have moderated. Core inflation (excluding changes in food and energy prices from the CPI) has fallen slightly to within the lower-4% range, and short-term inflation expectations of the general public have slowed to the upper-3% range, but they have continued to stay high. Looking ahead, it is forecast that consumer price inflation will remain around 5% in January and February, but will gradually decrease due to the base effect and weakening pressures from the demand side. Consumer price inflation for this year is expected to be generally consistent with the November forecast of 3.6%. Uncertainty surrounding inflation forecasts is judged to be high, regarding the degree of economic slowdown at home and abroad, the size of the increases in electricity and gas fees and public utility fees, and movements of global oil prices and exchange rates.

In financial and foreign exchange markets, unrest has been eased by market stabilization measures and adjustments to the pace of the US Federal Reserve’s policy rate hikes. Long-term market interest rates have fallen, spreads on corporate bonds and commercial paper have narrowed, and the Korean won to US dollar exchange rate has decreased significantly. However, high credit risk aversion is continuing among non-prime bonds and project financing asset-backed commercial paper (PF-ABCP). Household loans have continued to decrease, and the decline in housing prices has widened significantly across all parts of the country.

The Board will continue to conduct monetary policy in order to stabilize consumer price inflation at the target level over the medium-term horizon as it monitors economic growth, while paying attention to financial stability. The Board deems it warranted to maintain the restrictive policy stance with an emphasis on ensuring price stability, as inflation is expected to remain high above the target level, although the domestic economic growth rate has slowed. Meanwhile, the Board will judge whether the Base Rate needs to rise further while thoroughly assessing the economic downside risks and financial stability risks, the effects of the Base Rate raises, the pace of inflation slowdown, and monetary policy changes in major countries.

Opening Remarks to the Press Conference

Today, the Monetary Policy Board (MPB) of the Bank of Korea decided to raise the Base Rate by 25 basis points, from 3.25% to 3.50%.

I will first go over financial and economic conditions at home and abroad, and then explain the background to today’s Base Rate decision in detail.

First, looking at the changes in external conditions since the November MPB meeting, the global economy has continued to slow, affected by ongoing high inflation and the resultant policy rate hikes in major countries, although inflation is starting to slow due to falling global oil prices. Specifically, the U.S. economy has seen slowing growth, mainly in consumption. The euro area now faces a higher chance of negative growth, due to sustained slumps in consumption and investment. In China, domestic demand and exports continue to stagnate amid the virus surge, despite an earlier-than-expected easing of its COVID restriction policies. As for global financial markets, major price variables have generally shown reduced volatility, with the U.S. dollar remaining weak, reflecting the U.S. Federal Reserve’s adjustment of its policy rate hike pace at the December FOMC meeting.

The Korean economy has continued to slow. Exports dropped sharply due to a slowdown in major trading partners’ economies and in the IT business. Consumption has also shown weaker recovery momentum, as the boosted demand during the normalization of economic activities has gradually slowed along with interest rate hikes. With the domestic economy continuing its slowdown, the GDP growth for this year is expected to be below the November forecast of 1.7%. The economy is projected to improve gradually going into the second half of this year, driven by recoveries in the Chinese economy and in the IT business. However, there are still high uncertainties related to the pace of recovery in the Chinese economy as a result of the easing of COVID restriction policies and to the degree of the economic slowdown in major economies.

Concerning inflation, consumer price inflation remained high, at 5.0% in December. The pace of the price increases of processed food accelerated, with the continuing effects of electricity and gas fee hikes while the rise in the prices of petroleum products slowed. Core inflation has declined slightly to 4.1% and short-term inflation expectations of the general public decreased to 3.8% in December, but they are still at a high level. Going forward, consumer price inflation is projected to be around 5% in January and February, as the accumulated cost pressure is reflected in public utility fees, including electricity and gas fees, and processed food prices, before gradually going down. The annual consumer price inflation for 2023 is expected to be generally in line with the November forecast of 3.6%. However, concerning the price forecasts, uncertainties remain high in terms of the degree of the economic slowdown at home and abroad, the size of the hikes in electricity and gas fees, and movements of global oil prices and the exchange rate.

In the domestic financial and foreign exchange markets, the market unrest seems to have eased thanks to market stabilization measures by the government and the Bank of Korea, and adjustments to the pace of the US Federal Reserve’s policy rate hikes. Long-term market interest rates have fallen, corporate bond and CP spreads have declined significantly, and the Korean won to U.S. dollar exchange rate has dropped to the mid-1,200 won range. However, there is still a high level of credit-risk aversion against non-prime bonds and PF-ABCP in the financial markets due to concerns over the sluggish real estate market. Exchange rates also remain highly uncertain, in line with the U.S. Federal Reserve’s monetary policy decisions and movements of the Chinese yuan and the Japanese yen.

Looking at household debt and the housing market, housing prices in both the Seoul metropolitan area and other regions have declined significantly. Household loans have continued to decrease, led by unsecured loans, due to rising borrowing rates and the sluggishness in the housing market.

The Board decided today to raise the Base Rate from 3.25% to 3.50%. The Board judged that today’s 25 basis-point increase is warranted to achieve price stability, given that inflation, still remaining at a high level, is projected to run above the target level for a considerable time, although the GDP growth rate for this year is expected to be below the November forecast.

Two members―Joo Sangyong and Shin Sung Hwan―voted against the decision to raise the Base Rate by 25 basis points, proposing to maintain the Base Rate at the current level of 3.25%.

Looking ahead, the Board deems it warranted to maintain its restrictive policy stance with a focus on price stability going forward, as inflation this year is expected to run above the target level while gradually moderating after March. Meanwhile, the Board will judge whether the Base Rate needs to rise further while thoroughly assessing the economic downside risks and financial stability risks, the effects of the Base Rate raises, the pace of inflation slowdown, and monetary policy changes in major countries.
 

통화정책방향

□ 금융통화위원회는 다음 통화정책방향 결정시까지 한국은행 기준금리를 현재의 3.25%에서 3.50%로 상향 조정하여 통화정책을 운용하기로 하였다. 국내경제 성장률이 지난 11월 전망치보다 낮아질 것으로 예상되나, 물가 오름세가 여전히 높은 수준이고 앞으로도 상당기간 목표수준을 상회할 것으로 전망됨에 따라 물가안정을 위해 기준금리를 0.25%p 추가 인상할 필요가 있다고 판단하였다.

□ 세계경제는 인플레이션이 국제유가 하락 등의 영향으로 둔화되기 시작하였으나 여전히 높은 수준을 유지하는 가운데 이에 대응한 주요국의 정책금리 인상이 이어지면서 경기 둔화가 지속되었다. 국제금융시장에서는 미 연준의 금리인상 속도 조절, 유럽중앙은행 등의 통화긴축 강화 전망 등으로 미 달러화 약세가 이어졌다. 앞으로 세계경제와 국제금융시장은 글로벌 인플레이션의 둔화 속도, 주요국의 통화정책 변화 및 미 달러화 움직임, 방역정책 완화 이후 중국경제의 전개 상황, 지정학적 리스크 등에 영향받을 것으로 보인다.

□ 국내경제는 수출이 큰 폭 감소하고 소비의 회복 흐름이 약화되는 등 성장세 둔화가 지속되었다. 고용은 전반적으로 양호한 상황이지만 경기 둔화로 취업자수 증가폭 축소가 이어졌다. 앞으로 국내경제는 글로벌 경기 둔화, 금리 상승 등의 영향으로 성장세가 약화되면서 금년 성장률이 지난 11월 전망치(1.7%)를 하회할 것으로 예상된다. 향후 성장 전망에는 중국경제의 회복 속도, 주요국 경기 둔화 등과 관련한 불확실성이 큰 상황이다.

□ 소비자물가는 석유류 가격 오름세 둔화에도 불구하고 가공식품 가격 상승폭 확대, 전기·가스 요금 인상 영향 등으로 12월에도 5.0%의 높은 오름세를 지속하였다. 근원인플레이션율(식료품 및 에너지 제외 지수)은 4%대 초반에서 소폭 하락하였고 단기 기대인플레이션율은 3%대 후반으로 둔화되었으나, 여전히 높은 수준을 나타내었다. 앞으로 소비자물가 상승률은 1~2월중 5% 내외를 나타내다가 기저효과, 수요압력 약화 등으로 점차 낮아지겠으며, 연간 상승률은 11월 전망치(3.6%)에 대체로 부합할 것으로 예상된다. 향후 물가 전망에는 국내외 경기 둔화 정도, 전기·가스요금 등 공공요금 인상폭, 국제유가 및 환율 움직임과 관련한 불확실성이 큰 것으로 판단된다.

□ 금융·외환시장에서는 시장안정화 대책, 미 연준의 금리인상 속도 조절 등으로 불안이 완화되는 모습을 나타내고 있다. 장기시장금리가 하락하고 회사채 및 기업어음(CP) 스프레드가 축소되었으며, 원/달러 환율이 큰 폭 하락하였다. 다만 비우량 채권, 프로젝트 파이낸싱 자산담보부 기업어음(PF-ABCP) 등에 대해서는 높은 신용 경계감이 유지되고 있다. 가계대출은 감소세를 지속하였으며 주택가격은 수도권과 지방 모두에서 하락폭이 크게 확대되었다.

□ 금융통화위원회는 앞으로 성장세를 점검하면서 중기적 시계에서 물가상승률이 목표수준에서 안정될 수 있도록 하는 한편 금융안정에 유의하여 통화정책을 운용해 나갈 것이다. 국내경제의 성장률이 낮아지겠지만 물가가 목표수준을 상회하는 높은 오름세를 지속할 것으로 예상되므로 물가안정에 중점을 두고 긴축 기조를 이어나갈 필요가 있다. 다만 성장의 하방위험과 금융안정 측면의 리스크, 그간의 금리인상 파급효과, 인플레이션 둔화 속도, 주요국의 통화정책 변화 등을 면밀히 점검하면서 추가 인상 필요성을 판단해 나갈 것이다.