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BOK official says inflation pressure is falling

Nov 08,2018
A member of Korea’s monetary policy board said Wednesday that downside inflation pressure has been diminishing throughout the year, driving a slight change in the country’s years-long low consumer price trend.

“The Korean won against the U.S. dollar has been on a moderate appreciation since 2016, dragging down domestic prices,” Lim Ji-won said in a press meeting at the Bank of Korea (BOK) headquarters in Seoul. “But starting this year, the won is remaining slightly stronger against the U.S. greenback, along with experiencing wider fluctuation.”

In a broader sense, the won has been strengthened against the U.S. dollar for the past two years, bottoming out at 1,244.7 won in March 2016 and peaking at 1,054 won in April 2018.

She said the stronger won has decreased prices of imported goods in South Korea and played a role in weakening inflation pressure amid low crude oil prices during the period. Global economic cycles, administered prices and interest rate differences with the United States also lent support to the trend. Korea’s consumer prices rose 1 percent in 2016, 1.9 percent in 2017 and 1.5 percent in the first 10 months of 2018.

Recently, however, she noted that the appreciating pace of the Korean won against the greenback seemed to slow down as the U.S. economy shows strong signs of recovery.

“It’s too early to say that the Korean won is already off the upside cycle,” Lim said. “But [the slowdown in the pace] shows that one of the downside pressures on the inflation is diminishing.”

Inflation is the most important economic factor that the central bank considers when it decides the policy rate.

The BOK has followed an accommodative monetary policy for years, citing low inflation pressure.