SEOUL: Most of the Bank of Korea’s (BOK) seven board members believe that monetary policy should stay restrictive for now to bring inflation down to its 2 per cent target as supply-side uncertainties persist, minutes of the Apr 12 meeting showed on Tuesday (Apr 30).
South Korea’s central bank said at the meeting that greater uncertainty on the inflation outlook and the strength of exports argued against a near-term push to cut interest rates as the bank left the policy rate steady at a 15-year high of 3.50 per cent as expected.
“Looking at the economic momentum, the economy is projected to grow at the pace of its potential growth rate or stronger, while financial market conditions have been easing, which means there is no need to rush to change restrictive monetary policies,” one of the seven board members said.
Analysts expect the BOK to deliver a 25 basis-point cut in both the third and fourth quarters, taking the benchmark rate down to 3.00 per cent by the end of this year.
The consumer price index (CPI) rose 3.1 per cent in March year-on-year, the same pace as February after easing for three months, far above the bank’s target of 2 per cent.
The worry for the BOK is the higher oil prices and improving exports could drive a fresh burst of inflationary pressure, at a time when a weak won has also become a headache.
“Stabilization of inflationary expectations is more important than anything else, and I think it will be necessary to continue restrictive policy measures until we can be confident that expected inflation has been stabilised enough to withstand a certain level of supply shock,” another member said.
Board members are not identified in the minutes, unless they dissented to the bank’s policy decisions.
