Full text of BOK statement on monetary policy decision in Aug.

On August 27, the Bank of Korea (BOK) announced a monetary policy decision to raise the key interest rate by 25 basis points to 3 percent. The Monetary Policy Board determined that this increase was necessary to prevent inflationary pressures from becoming widespread and to address financial stability risks. Despite the domestic economy continuing to grow at a stronger than expected pace, primarily due to strong exports and a recovery in domestic demand, inflation is expected to remain above the target level for an extended period.

The BOK acknowledged that global economic growth will be moderate, driven by robust investments in artificial intelligence, while inflation is projected to stay elevated due to rising energy prices. In global financial markets, long-term government bond yields increased, and the US dollar weakened as concerns about fiscal soundness in major economies grew.

The BOK expects the global economy and financial markets to be influenced by developments in the Middle East, AI investment trends, and changes in monetary and fiscal policies in key economies and trade relations. The domestic economy is forecast to maintain strong growth, led by exports and investment, with employment numbers slowly increasing, especially in the services sector.

The BOK projects the economy to grow at 3.3 percent this year and 2.9 percent next year, both significantly higher than the previous May forecasts of 2.6 percent and 2.1 percent. Inflation, measured by consumer price indices, is expected to remain above the target level, with a forecast of 2.7 percent this year and 2.3 percent next year.

Core inflation, excluding food and energy, is projected to be 2.5 percent for both years, higher than the May projections of 2.4 percent and 2.3 percent. The Bank of Korea will continue to monitor economic growth, financial stability, and inflation trends while deciding on the timing and pace of further interest rate adjustments.