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Full text of BOK statement on monetary policy decision in November

Economy 10:40 November 24, 2022

SEOUL, Nov. 24 (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 25 basis points to 3.25 percent.

The Monetary Policy Board of the Bank of Korea decided today to raise the Base Rate by 25 basis points, from 3.00 percent to 3.25 percent. The Board judges that the policy response to ensure price stability should be continued as inflation has remained high. The size of the Base Rate hike was judged to be appropriate at 25bp, in overall consideration of the easing of risks in the foreign exchange sector and the contraction of short-term financial markets, while the economic slowdown is expected to be greater than forecast in August.

Currently available information suggests that the global economic slowdown has continued, affected by the high inflation, ongoing policy rate hikes in major countries and the prolonged Ukraine crisis. In global financial markets, the U.S. dollar has weakened and long-term market interest rates have fallen, as risk aversion has partly subsided on the expectations of an adjustment to 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, monetary policy changes in major countries and U.S. dollar trends, and geopolitical risks.

Domestic economic growth has continued to slow with exports shifting to a decrease, although private consumption has maintained its recovery trend. Labor market conditions have continued to be favorable with a low unemployment rate, despite a slowing increase in the number of persons employed. Going forward, domestic economic growth is expected to weaken, affected by the global economic slowdown and the increase in interest rates. GDP growth for this year will be consistent with the August forecast of 2.6 percent, but that for next year is projected to be 1.7 percent, considerably lower than the August forecast of 2.1 percent.

Consumer price inflation has remained high at 5.7 percent in October due to increases in electricity and gas fees and the accelerating price increases in processed food products, although increases in the prices of petroleum products have moderated. Core inflation (excluding changes in food and energy prices from the CPI) and the inflation expectations of the general public have stayed high at the lower-4 percent level. Looking ahead, it is forecast that consumer price inflation will somewhat decrease due to the base effect and the economic slowdown, but will remain high at the 5 percent level for some time. Consumer price inflation is projected to be 5.1 percent in 2022 and 3.6 percent in 2023, slightly below the August forecast of 5.2 percent in 2022 and 3.7 percent in 2023, but uncertainties are judged to be high related to the movements of exchange rates and global oil prices, the degree of economic slowdown at home and abroad, and the size of increases of electricity and gas fees.

In the financial and foreign exchange markets, the long-term Korean Treasury bond yield and Korean won to U.S. dollar exchange rate have decreased and stock prices have risen due to expectations of an adjustment to the pace of monetary tightening in major countries. However, in the short-term financial markets, yields on project financing asset-backed commercial paper (PF-ABCP) have risen significantly and their transactions have shrunk. Household loans have increased only slightly and housing prices have further decreased in 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 a medium-term horizon as it monitors economic growth, while paying attention to financial stability. The Board sees continued rate hikes as warranted for some time, as inflation is expected to remain high, substantially above the target level, although the domestic economic growth rate has slowed. 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, monetary policy changes in major countries, financial stability conditions, and geopolitical risks.
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