Currency policy direction
□ the Bank of Korea's monetary policy committee decided to conduct currency policy by keeping the Bank of Korea base rate at the current 2.50% until the next decision on the currency policy direction. With the inflation rate maintaining a stable trend near the target level, growth is expected to continue a better-than-expected improvement, and risks to financial stability are also continuing. It judged that it would be appropriate to maintain the current base rate level while assessing domestic and external policy conditions.
□ Despite uncertainty over the U.S. tariff policy, the global economy is expected to continue a solid growth trend, helped by increased investment related to AI and expansionary fiscal policy in major countries, while the inflation path is likely to diverge by country. In international financial markets, overall risk-off sentiment strengthened somewhat. Long-term Government Bonds yields rose and then fell, influenced by concerns about major countries' fiscal soundness and changes in expectations for the U.S. Federal Reserve's currency policy, while the U.S. dollar weakened due to the yen's strength and the U.S. Supreme Court's ruling invalidating the reciprocal tariff. Stock prices generally continued to rise, reflecting improved corporate earnings, but volatility increased on concerns about AI overinvestment and displacement of existing industries. Going forward, the global economy and international financial markets are expected to be affected by changes in major countries' currency and fiscal policy and trade environments, developments in AI investment, and geopolitical risks.
□ The domestic economy continued to improve on the back of a recovery in consumption and strong exports. Employment kept increasing, led by services. Looking ahead, while construction investment will remain sluggish, the recovery in consumption is expected to continue, and the increase in exports and facility investment is also likely to be stronger than previously expected, driven by a favorable semiconductor cycle and solid global economic growth. Accordingly, this year's growth rate is expected to be 2.0%, exceeding the 2.3% projection in Nov., 2.0%. However, this growth path is subject to upside and downside risks related to the semiconductor cycle and the pace of domestic demand recovery, major countries' currency and fiscal policy and U.S. tariff policy, and geopolitical risks.
□ As for prices, the consumer price inflation rate fell to 2.0% in Jan. due to slower increases in petroleum product prices and prices of agricultural, livestock, and fisheries products, while core inflation (index excluding food and energy) was 2.0%, the same as the previous month. Short-term expected inflation (general public) remained at 2.6%, the same as the previous month. This year's consumer price and core inflation rates are projected at 2.2% and 2.1%, respectively, slightly above the Nov. projections (2.1% and 2.0%) due to cost pressures in some items such as electronic devices. The future inflation path is expected to be affected by movements in international oil prices and the exchange rate, domestic and external economic trends, 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 fluctuated, influenced by supply-demand pressures such as residents' overseas securities investment and foreigners' stock selling, as well as movements in neighboring countries' currency such as the yen, before recently falling considerably. Stock prices posted sharp gains on expectations of strong earnings in major sectors and improved capital market systems, but volatility increased in line with global stock market movements. Treasury yields rose considerably due to weakened expectations of rate cuts and supply-demand pressures from MoneyMove, then partially retraced. Household loans rose only slightly as the government continued its stance of strengthening macroprudential policy, and the pace of increases in dwelling prices in the Seoul metropolitan area slowed due to government measures, though it will be necessary to monitor future developments further.
□ the Bank of Korea's monetary policy committee will operate currency policy with a focus on stabilizing the inflation rate at the target level over the medium term while monitoring the growth trend and paying attention to financial stability. In the domestic economy, the inflation rate is expected to rise slightly but remain stable near the target level, and growth is projected to continue improving. From a financial stability perspective, it remains necessary to pay continued attention to risks related to dwelling prices and household debt in the Seoul metropolitan area and the impact of exchange rate volatility. Accordingly, future currency policy will support the recovery in growth, while decisions will be made after closely examining changes in domestic and external policy conditions and the resulting price trends and financial stability conditions.
□ All seven members of the monetary policy board supported the decision to keep the base rate unchanged this time.