South Korea’s central bank will maintain monetary policy “accommodative” as it predicts growth and inflation to stay subdued over the next few years amid uncertainties on global front.
In its annual monetary policy report submitted to the National Assembly on Thursday, the Bank of Korea (BOK) said the country’s economy is expected to grow gradually while from demand side inflationary pressure is projected to remain low.
It estimated annualized growth to gain modestly 2.3 percent in 2020 and 2.4 percent in 2021 after 2.0 percent this year with local demand expected to pick up from the second half of next year.
The BOK noted that global uncertainties continue to remain even though some downside risks in external conditions have eased thanks to progress in trade talks between the United States and China since October and delay in Brexit, Britain’s exit from the European Union.
The BOK, in particular, raised possibility of tough negotiation between the U.S. and China due to position differences and challenges facing the United Kingdom to reach agreement on new trade relations even if the Brexit proposal is approved by the parliament.
According to the BOK, global economic policy uncertainty index tripled to 350 in July, this year, from slightly above 100 in January, last year. The index for U.S. trade policy uncertainty fluctuated up to 1,000 points this year from below 100 in the second half of 2017.
The BOK raised vigilance about increased volatility in foreign exchange and finance markets depending on economic flow at home and abroad and external risks.
The BOK cut the policy rate by 0.25 percentage points each in July and October to a historic low of 1.25 percent.
But by defining current level “sufficiently accommodative” and vowing to keep mindful of overseas trends, the BOK may not venture taking the interest rates below current record low. The U.S. Federal Reserve on Wednesday kept its Fed Fund rate target unchanged at 1.50 percent and 1.75 percent and indicated that it won’t change borrowing costs anytime soon.
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