★Monetary Policy Decision & Opening Remarks to the Press Conference (January 16, 2025) | Press Releases(상세) | News | News & Publications |  Bank of Korea
Central bank: bok | Type: statement | Date: 2025-01-16

★Monetary Policy Decision & Opening Remarks to the Press Conference (January 16, 2025)
2025.01.16
Monetary Policy
Monetary Policy Affairs Team(02-759-4442)
Attachment
Monetary Policy Decision(2501).doc
Monetary Policy Decision(2501).pdf
Opening Remarks to the Press Conference(2501).docx
Opening Remarks to the Press Conference(2501).pdf
Monetary Policy Decision
today to leave the Base Rate unchanged at 3.00% for the intermeeting period.
While inflation stabilization has continued along with an ongoing slowdown in household debt, downside risks to economic growth have intensified and the volatility of exchange rates has increased due to the unexpected political risks that have recently escalated. As the economic outlook and foreign exchange market uncertainties have increased due to the changing domestic political situation and economic policies in major countries, the Board judged that it is appropriate to maintain the current level of the Base Rate and to further assess any changes in domestic and external conditions.
The currently available information suggests that the global economy has seen divergent economic activity across countries and that it is facing greater uncertainties surrounding growth and inflation, driven by the new U.S. administration’s economic policies, by the pace of the Fed’s rate cuts, and by the political situations in major countries. Concerning global financial markets, the volatility of key indicators has increased, as the U.S. dollar has remained strong and as long-term Treasury yields have risen. Looking ahead, the global economy and financial markets will both be influenced by the specifics of the new U.S. administration’s policies, by monetary policies and political situations in major economies, as well as by geopolitical risks.
In terms of the domestic economy, although export growth somewhat increased in December, the recovery of consumption has weakened and construction investment has remained sluggish. The labor market has continued its slowdown as the scale of the increase in the number of employed persons has lessened. Going forward, export growth is expected to slow and domestic demand is forecast to recover at a slower pace than expected due to deteriorating consumer sentiment. The GDP growth outlook is highly likely to fall below the November forecasts of 2.2% for last year and of 1.9% for this year, and high uncertainties remain along the future path of economic growth concerning changes in the domestic political situation, economic stimulus measures by the government, and the specifics of the new U.S. administration’s policies.
Inflation has maintained its stabilization trend. Consumer price inflation rose to 1.9% in December, reflecting an increase in petroleum product prices. However, core inflation (excluding changes in food and energy prices from the CPI) fell slightly to 1.8%. Short-term inflation expectations remain at the upper 2% level. Looking ahead, inflation is expected to remain stable, supported by subdued demand pressure. However, elevated exchange rates could potentially exert upward pressure, and uncertainties have increased related to global oil prices as well as to economic growth at home and abroad.
In financial and foreign exchange markets, the Korean won to U.S. dollar exchange rate has risen significantly, mainly affected by increased domestic political uncertainties and the possibility of more gradual rate cuts in the U.S. Stock prices did fall considerably, but have rebounded this year. Long-term Korean Treasury bond yields have declined due to concerns over an economic slowdown. Household loans have sustained their slowing trend, driven by a decline in housing transactions. Housing prices have shifted to a decline.
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. Regarding the domestic economy, inflation stabilization has continued, while downside risks to economic growth have intensified and uncertainties surrounding the economic outlook have increased, owing to the escalation of political risks. Regarding financial stability, the slowing trend in household debt is anticipated to persist for some time. However, it is important to remain cautious concerning the impact of heightened exchange rate volatility on both inflation and financial stability. Therefore, while closely monitoring the domestic political situation, changes in economic policies both at home and abroad, and the resulting trends in inflation, household debt, and the exchange rate, the Board will determine the timing and pace of any further Base Rate cuts to mitigate downside risks to economic growth.
Opening Remarks to the Press Conference (January 16, 2025)
To begin with changes in external conditions, the global economy has seen divergent economic activity across countries and is facing greater uncertainties surrounding growth and inflation, driven by the new U.S. administration’s economic policies, the pace of the Fed rate cuts, and the political situations in major countries. The U.S. economy is expected to continue its favorable growth trend due to its robust labor market conditions and its pro-growth policies. Meanwhile, the euro area is projected to recover more slowly than anticipated because of heightened political uncertainty and the sluggish manufacturing sector. In China, despite the government’s stimulus measures, economic growth is expected to slow, affected by the continuing slump in real estate and trade protectionism.
Concerning global inflation, the U.S. has seen its inflation fall more slowly than expected due to the continued favorable growth trend, and accordingly the pace of policy rate cuts is likely to slow. In the euro area, inflation will continue to slow as demand pressure is low, but upside risks, such as a rise in international oil and natural gas prices, still remain.
In global financial markets, the U.S. dollar remained strong and long-term Treasury bond yields rose significantly, driven by uncertainty about global economic prospects, by the slowing pace of policy rate cut in the U.S., and by political unrest in some countries.
Looking at domestic conditions, while export growth has somewhat increased in December, economic growth has continued to slow, driven by a weakened recovery in consumption following intensified political risk and a continued sluggishness in construction investment.
Going forward, export growth is expected to slow, and domestic demand is forecast to recover at a slower pace than expected due to deteriorating consumer sentiment. The growth rates for both last year and this year are highly likely to fall below the November forecasts of 2.2% and 1.9%, respectively. Although the government’s economic policy responses are expected to act as an upside factor for future growth, there are significant downside risks related to changes in the domestic political situation and the new U.S. administration’s policies.
Inflation has maintained its stabilization trend so far. Consumer price inflation rose to 1.9% in December, reflecting an increase in petroleum product prices. However, core inflation fell slightly to 1.8%. Short-term inflation expectations remain at the upper 2% level.
Looking ahead, inflation is expected to remain stable, supported by subdued demand pressure. However, elevated exchange rates could potentially exert upward pressure, and uncertainties have increased related to global oil prices as well as to economic growth at home and abroad.
In the financial and foreign exchange markets, the Korean won to U.S. dollar exchange rate has risen significantly and volatility has also increased. Amid the ongoing effects of the strong U.S. dollar, increased domestic political risk has been a factor for the further increase in the exchange rate. Stock prices fell considerably but have rebounded this year. Long-term Korean Treasury bond yields have shown a downward trend due to concerns over an economic slowdown, despite a surge in U.S. long-term Treasury yields following the hawkish results of the FOMC December meeting.
The housing market and the growth of household debt have continued to slow due to the ongoing effects of the government’s macroprudential policies. Housing prices have shifted to a decline. Growth in household loans has decreased considerably as housing-related loans have continued to slow due to a decline in housing transactions and as non-housing-related loans have also decreased.
Lastly, I will explain the background to the Base Rate decision, which reflects the abovementioned domestic and external conditions.
The Board judged that downside risks to growth have significantly increased, but it is appropriate to maintain the current level of the Base Rate and to further assess changes in domestic and external conditions because the economic outlook and foreign exchange market uncertainties have increased due to the changing domestic political situation and the economic policies in major countries.
One member
Shin Sung Hwan
voted against the decision to leave the Base Rate unchanged, proposing to lower it by 25 basis points.
To explain our decision in more detail, the most significant change in the policy environment since the last November meeting has been the escalation of political risks triggered by the declaration of martial law. The Board has been diagnosing the potential impact of these changes on our economy and debating how to take into account these factors in the monetary policy decision.
Comparing the forecasts for key policy variables with those from the previous meeting, it was judged that, first, housing prices and household loans will continue to slow for the time being, as the effects of macroprudential policies persist and as purchasing sentiment weakens further. Second, for economic growth, the downside risks have increased, and the uncertainty of the outlook for growth is substantially high, particularly with regard to the domestic political situation, the size and timing of economic stimulus measures, and the policy direction of the new U.S. administration. Third, inflation is not expected to change much from its stable trend, but it is necessary to remain cautious concerning the impact of higher exchange rate on inflation. Finally, regarding the exchange rate, given the limited scope for future rate cuts by the Fed, it could remain highly volatile for the time being, depending on the domestic political situation and changes in the new U.S. administration’s policies, which could have a negative impact on domestic inflation and financial stability, and these factors could harm external creditworthiness.
After careful deliberation and discussion, the Board has decided that it is appropriate to leave the Base Rate unchanged at its current level while further assessing the domestic and external policy conditions, including the domestic political situation and the economic policies in major countries such as the U.S., and examining how uncertainties may evolve in the future.
Regarding future monetary policy, as the downside risks to growth have intensified, we judged that the need for further adjustments to the Base Rate has risen. In this process, while closely monitoring the domestic political situation, changes in economic policies both at home and abroad, and the resulting trends in inflation, household debt, and the exchange rate, the Board will determine the timing and pace of any further Base Rate cuts.
Furthermore, while the Board decided to leave the Base Rate unchanged today, we have also decided to increase the amount of temporary special support for self-employed individuals and for small and medium-sized enterprises (SMEs) through the Bank Intermediated Lending Support Facility by 5 trillion won. This is because we judged that liquidity support needs to be strengthened for low-credit self-employed individuals and regional SMEs, which are facing difficulties due to the slow recovery of domestic demand amid increased downside risks to the economy.