Bank of Korea to Keep Accommodative Monetary Policy in 2017

Seoul, South Korea's central bank said Thursday it will maintain an accommodative monetary policy next year, while staying focused on financial market stability.

With the local economy expected to continue "modest" growth, "high uncertainties" are persistent, the Bank of Korea (BOK) pointed out in a report on its monetary policy strategy.

It forecast 2% range growth of Asia's fourth-biggest economy in 2017, according to Yonhap news agency.

The BOK cited the slowing expansion of private consumption and construction investment despite a slight improvement in exports and facility improvement as well as a mild recovery in the global economy.

Positive factors include stimulus-oriented policies by major economies.

Among external downside risks are the U.S. move to raise interest rates, the spread of protectionist trade and the possibility of a slowdown in China's economic growth, it added.

The BOK has been in dilemma after cutting the benchmark interest rate to a record low of 1.25 percent in June.

The real economy shows no clear signs of a significant recovery, while the U.S. is the path to lifting rates.

Another setback is inflation. The BOK's mid-term inflation target is set at 2.0 percent on-year.

"As consumer prices are on the gradual rise, it is expected to get close to the inflation stability target," the BOK said, citing international oil price hikes and eased concern about global deflation.

Experts said fiscal policy matters more than monetary under the current circumstances surrounding the South Korean economy.

President of the Korea Institute of Finance, Shin Sung-hwan called for the effective use of the nation's state budgets set at around 400 trillion won for 2017.

"(These days) A reduction in interest rates does not lead to an increase in consumer and corporate spending," he said in a media forum. "It bears little fruit." He took issue with the government's budget plan.

"Given that our economy is in a very difficult situation, the government's fiscal policy direction is excessively conservative," he said. "Chances are low that the earmarked spending will contribute to the economic growth rate next year."

Source: Qatar News Agency