The Bank of Korea’s monetary policy board on Tuesday voted to hold the nation’s benchmark interest rate steady at 1.50 percent, in line with expectations.
The decision was the first since the bank hiked rates by 25 basis points in November, marking the first change in the benchmark in 14 months. It also marked the bank’s first rate hike since 2011.
The rate had been static since June of last year, when the bank trimmed the rate from 1.50 percent.
Persistently low inflation and touches of softness in the economy allowed the central bank to leave the monetary stimulus in place.
“The board considers that the acceleration in global economic growth has continued. Volatility in the global financial markets has increased substantially, with government bond yields rising and stock prices falling in line mainly with strengthening expectations of monetary policy normalizations in major countries,” the bank said.
Consumer prices were up 0.9 percent on year in January – well shy of forecasts for 1.5 percent, which would have been unchanged from the December reading. On a monthly basis, inflation was up 0.5 percent, accelerating from 0.3 percent in the previous month.
Core CPI, which excludes food prices, gained 0.2 percent on month and 1.1 on year after rising 0.2 percent on month and 1.5 percent on year a month earlier.
Producer prices gained 1.2 percent on year in January, slowing from 2.2 percent in December. On month, producer prices gained 0.4 percent after remaining flat in December.
“Looking ahead it is forecast that consumer price inflation, after remaining in the low- to mid-1% range for some time, will pick up and gradually approach the target level from the second half of this year. Core inflation will also gradually rise,” the bank said.
South Korea’s gross domestic product contracted a seasonally adjusted 0.2 percent on quarter in the fourth quarter of 2017. That missed forecasts for an increase of 0.5 percent following the 1.5 percent jump in the three months prior.
On a yearly basis, GDP gained 3.0 percent – again missing expectations for 3.2 percent and down from 3.8 percent in the previous three months.
For all of 2017, South Korea’s GDP was up 3.1 percent.
“The board expects domestic economic growth to be generally consistent with the path projected in January. It anticipates that investment will slow, but that the trend of steady increase in consumption will continue,” the bank said.
South Korea’s unemployment rate eased to 3.6 percent in January from 3.7 percent in December, which was revised up from 3.6 percent.
South Korea posted a merchandise trade surplus of $3.7 billion in January, marking the 72nd straight months in the black.
Exports jumped 22.2 percent on year to $49.21 billion in January – climbing in 15 straight months and up from $40.25 billion a year earlier.
Imports spiked an annual 20.9 percent to $45.48 billion.
“Looking ahead, the board will conduct monetary policy so as to ensure that the recovery of economic growth continues and consumer price inflation can be stabilized at the target level over a medium-term horizon, while paying attention to financial stability,” the bank said.