choongsoo kim : global and local economic trends and challenges for the bank of korea ’ s monetary policy speech by mr choongsoo kim, governor of the bank of korea, at the seoul financial forum, seoul, 17 august 2010. * i. * * greetings good morning, i am indeed delighted to be here with you this morning to deliver a speech at the “ seoul financial forum ”, which is focused on helping korea as a premier international financial center in northeast asia. let me take this opportunity to express my deep thanks to all participants in this forum and especially to chairman kim ki hwan, for this invitation to address you. i intend to survey with you the current state of the economy at home and abroad and then to talk to you about the monetary policy challenges that lie ahead. ii. global and local economic trends the world economy let me look first to developments in the world economy, which are one of the more important factors in judging the course of the korean economy, whose growth is heavily dependent upon trade with the world economy. in fact the world economy is generally deemed to be maintaining a recovery, even though there are differences from country to country in its pace. giving the lie to initial worries following the global financial crisis that the economic recession would prove prolonged, countries around the world have found themselves on a relatively rapid recovery track. this was certainly greatly helped at least until the end of last year by the policy effect stemming from the bold and decisive monetary and fiscal policies put in place. more recently though, there have been stirrings of recovery in the private sector ’ s self - sustaining growth dynamism against the backdrop of an increase in the volume of world trade and improvement in the labor market. strikingly the global recovery is being led by the asian emerging market countries, of which club korea counts itself a member, with the rapid growth of india and china and the consequent expansion of intra - regional trade. that said the picture is not without several downside risk factors. in the us economy, where anticipations of an economic recovery were running high early in the year, labor and housing market related indicators have recently been coming in more subdued than expected and consumer confidence has also deteriorated. reflecting these conditions the federal open market committee back - pedalled somewhat from its previous upbeat note in its appraisal of the state of economic activity in its statements of the monetary policy direction this june and august. specifically, last week, on 10th of august, the fom

of low inflation, changes in conditions at home and abroad can have greater impacts on inflation dynamics during periods of high inflation, just like today. this has been observed not only in korea but also in major economies. we need to thoroughly analyze what impacts these changes might have on inflation developments going forward. regarding the future policy stance of bank of korea, details will be discussed at the next monetary policy board meeting. however, despite the expected gradual decline in inflation next year, we do deem it warranted to maintain our policy focus on prices, as inflation is expected to remain high, running well above the target level of 2 %. given the high uncertainties over the pace of deceleration in inflation, we plan to respond in a more well - tuned manner by examining the effects of our previous policy measures on the pace of the economic slowdown through the use of incoming data, and also by considering changes in policy rates in major economies, including the u. s. 2 / 3 bis - central bankers'speeches we also plan to closely follow the effects of rising interest rates on property price corrections and the potential financial instability to which this may lead, as well as any other unexpected side - effects that may spread to the far corners of the korean economy. in addition, bank of korea has recently reviewed areas in which we could improve our inflation targeting operations, and conducted consultations with the government. as a result, we have decided to differentiate this press conference from those after our monetary policy decision meetings, and change its format a bit in accordance with its original purpose of providing a detailed explanation to the general public of the inflation situation. we hope to provide you with more details in the first half of next year after going through every possible alternative here. in conclusion, i sincerely thank all of you here today for attending this press conference during what i'm sure is a very busy time of the year for all of you. i also offer you and your families a very warm season's greetings, and i hope you have great health and happiness in the year to come. thank you. 3 / 3 bis - central bankers'speeches