Inflation Target Maintained at 2%
The Bank of Korea (BOK) has announced it will keep its inflation target at 2% until the next policy review, as the era of 'low-inflation' is not expected to materialize within the next one to two years, according to Governor Rhee Chang-yong.
Rhee emphasized that the mechanisms put in place to stabilize high inflation in recent years have been effective. He anticipates inflation to remain stable over the next two years, mirroring the stance of other major central banks that also maintain a 2% target.
Economic Growth and Price Pressures
The central bank predicts that the economy will not enter a low-inflation phase below 1% in the next year or two, due to expected economic growth in the upper-1% range and persistent price pressures from a strong dollar and climate change.
In a recent development, South Korea's consumer inflation was weaker than expected at 1.5%, prompting the central bank to lower interest rates to 3.00% to support the slowing economy. Looking ahead to 2025, the BOK anticipates consumer inflation to rise to the upper-1% range in the first half, stabilizing near the target in the second half.
Factors Influencing Inflation
The BOK cited a weaker local currency and increased public utility costs as contributing to upward price pressures, while lower oil prices act as an offsetting factor.
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