five years to be in the low - 3 % range on an annual average basis, the lowest level since 1990. this suggests that external conditions will present considerable challenges to the korean economy. having said that, one piece of good news is that the semiconductor business is reviving gradually from its downcycle. given that the recovery and upcycle in the it sector usually lasted for over two years, the economy is forecast to continue its recovery driven mainly by exports, with growth rates reaching 2. 1 % this year and 2. 3 % next year. 1 / 5 bis - central bankers'speeches it is very encouraging to see our economy improving, albeit slowly, even when economic growth in major economies is likely to slow this year. excluding the it manufacturing sector, however, the recovery might not be strong enough to be felt by all the people, with the growth rate projected to be only 1. 7 %. inflation is expected to gradually approach the 2 % target, but when it will stabilize at the target still remains uncertain. that is why we are particularly concerned about the hardships faced by vulnerable groups who encounter more challenges due to high inflation and prolonged periods of elevated interest rates. my dear colleagues, last year, most central banks worked toward a common goal, to tackle high inflation, but this year it is anticipated that the policy rate hike cycle in major economies will conclude and policies will differ across countries. in this regard, the bank of korea will have more room to make policy decisions with greater focus on domestic conditions. the economic landscape for this year, as well as the final evaluation of last year's policy implementation performance, will depend on how we do our job this year. in view of this changing economic environment at home and abroad, the bank of korea must put the top priority on price stability while at the same time exploring the best policy mix required for economic recovery and financial stability. finishing up the long inflation fight successfully will be more important than anything. in mountain climbing or a marathon, it is said that the " last mile " indicating the incline just before reaching the summit or the final stretch in a marathon is the most challenging. although inflation will continue to moderate, the pace could be slower than we expect, dragged down by uncertainties with commodity price movements and accumulated upward cost pressures. however, we must, and will, achieve price stability. we will determine the duration of our restrictive monetary policy stance and the optimal interest rate channel needed to bring inflation back on target, based on close monitoring

seong - tae lee : monetary policy in an environment of low inflation opening address by mr seong - tae lee, governor and chairman of the bank of korea, at the bank of korea international conference 2006, seoul, 16 june 2006. * * * greetings ladies and gentlemen, i am delighted to be here to express my warm welcome to all of you attending " the bank of korea international conference 2006 ". i would like to extend particular gratitude to our keynote speaker, professor frederic mishkin of columbia university ; to our luncheon speaker, president un - chan jung of seoul national university ; to president william poole of the federal reserve bank of st. louis ; and to our other chairpersons, speakers and discussants, for taking time out from their busy schedules to be with us today. this year's conference, marking the 56th anniversary of the bank of korea's establishment, deals with the theme of " monetary policy in an environment of low inflation ". many central banks including the bank of korea are currently facing difficulties conducting monetary policy in the new environment characterized by low inflation. in this regard, i believe that today's conference is very meaningful and most timely. conducting monetary policy under low inflation as we are all aware, inflation throughout the world has declined since the mid - 1990s. this is mainly attributable to the emergence on the global stage of vast low - wage economies such as china and india ; to productivity gains made possible by information technology ( it ) development ; and to intensified competition in both domestic and global markets. in addition to all of these factors, the increased credibility of central banks is also believed to have contributed to low inflation. over the years, central banks around the world have been resolute in their pursuit of price stability, while working hard to enhance their capabilities in the conduct of monetary policy. together with the continuing price stability, this has helped lower the inflation expectations of economic agents. the case is much the same in korea. both consumer price and core inflation rates are running at levels some two percentage points lower than those we saw here prior to the currency crisis. particularly, the rate of core inflation nowadays is moving substantially below the lower bound of the bank of korea's target range. in the last few months, upward price movements have been observed in several countries. however, rising prices on a scale similar to those of the past are no longer expected to reappear for the time being, as firms continue their efforts to improve productivity with