Direction of currency policy
□ The Bank of Korea's monetary policy committee decided to operate currency policy by keeping the Bank of Korea base rate at the current level of 2.50% until the next decision on the direction of currency policy. With inflation somewhat higher and uncertainty over growth prospects persisting, but with improvements continuing mainly in consumption and exports and risks on the financial stability side also ongoing, it judged that it would be appropriate to maintain the current base rate level while examining domestic and external policy conditions.
□ Looking at the global economy, growth will slow due to the impact of U.S. tariff policy, but the pace is expected to be moderate on the back of easing U.S.-China trade tensions and expansionary fiscal policy in major countries, and inflation paths are likely to differ by country. In international financial markets, long-term Government Bonds yields and the U.S. dollar index rose and then partially retraced, affected by changing expectations for U.S. Federal Reserve rate cuts and the fiscal situations of major countries. Stock prices continued to rise and then corrected on concerns about overvaluation in the AI institutional sector. Going forward, the global economy and international financial markets are expected to be affected by changes in major countries' currency and fiscal policy and the global trade environment.
□ The domestic economy continued to improve as the recovery in consumption and the increase in exports continued despite sluggish construction investment. Employment kept increasing in total jobs, but continued to decline in major industries such as manufacturing. Going forward, while domestic demand continues to recover mainly in consumption, export growth rates will slow somewhat, but are expected to perform better than expected thanks to a favorable semiconductor cycle and the conclusion of the Korea-U.S. tariff negotiations. Accordingly, this year's and next year's growth rates are expected to be 1.0% and 1.8%, respectively, exceeding the August forecasts (0.9% and 1.6%, respectively). However, uncertainty is considered high regarding this growth path, including the global trade environment, the semiconductor cycle, and the pace of domestic demand recovery.
□ Domestic prices rose, with the consumer price index and core inflation (excluding food and energy) increasing to 2.4% and 2.2% in October, respectively, due to higher prices for travel-related services and agricultural, livestock, and fishery products, and an expanded rise in petroleum product prices driven by a higher exchange rate. Short-term inflation expectations (general public) stayed at the same level (2.6%) in November as the previous month. Looking ahead, the inflation rate will gradually fall to around 2% amid stable international oil prices, but is expected to move somewhat above the previous forecast path due to the higher exchange rate and the recovery in domestic demand. Accordingly, this year's consumer prices are expected to rise 2.1%, exceeding the August forecast (2.0%), and core prices are expected to rise 1.9%, in line with the previous outlook. Next year, consumer price and core inflation rates are also projected to be 2.1% and 2.0%, respectively, exceeding the previous forecasts (1.9% each). The future inflation path is expected to be affected by domestic and external economic conditions, exchange rate and international oil price movements, and the government's price stabilization measures.
□ In the financial and foreign exchange markets, volatility in key price variables increased. The won/dollar exchange rate rose to the mid-to-high 1,400-won range due to residents' increased overseas securities investment and foreigners' net selling of stocks, and Government Bonds yields rose on changing expectations for domestic currency policy. Stock prices continued to rise on a favorable semiconductor cycle and then corrected. Household loans increased at a faster pace, mainly in other loans, and in the Seoul metropolitan housing market, price increases and transaction volumes slowed, but price increase expectations remain high.
□ The Bank of Korea's monetary policy committee will operate currency policy by monitoring growth while ensuring that the inflation rate can stabilize at the target level over a medium-term horizon, with attention to financial stability. Although growth forecasts for the domestic economy have been revised upward, both upside and downside factors are latent for the future path, and the inflation rate is somewhat higher than expected. From a financial stability perspective, continued attention is needed to risks from Seoul metropolitan dwelling prices and household debt and the impact of increased exchange rate volatility. Therefore, future currency policy will keep the possibility of rate cuts open, and in this process, the committee will closely examine changes in domestic and external policy conditions and the resulting growth and price trends and financial stability conditions, and determine whether and when to further cut the base rate.