The Bank of Korea (BOK) reaffirmed that it will keep its monetary policy “loose and accommodative” to aid the domestic economy next year regardless of contradictory actions in the United States.

The monetary policy committee in a meeting outlining its policy direction for 2017 agreed on sustaining the monetary policy expansionary upon conclusion that demand-side inflationary pressure won’t be great due to slow pace in recovery.

It will direct interest rate policy in the way to “buttress an economic recovery and inflation to near price stabilization target.” The BOK sets inflation target at around 2.0 percent. The consumer price index rose at an annualized rate of 1.3 percent in December and 1.0 percent for full 2016. It improved from the mostly zero percent range kept until August, but was still off from the desired target.

Recent gains were mostly attributed to recovery in oil prices and jump in fresh food prices due to unseasonable weather conditions while consumer and corporate spending remained sluggish.

The BOK kept the base rate at record low of 1.25 percent since last cut in June in a policy bind as the option of further easing to offset damage to the fragile economy from external uncertainties following the surprising British vote to exit the European Union and triumph of Donald Trump championing protectionist and nationalistic agenda in the U.S. presidential elections on top of domestic political unrest from sprawling scandal that has led to impeachment and criminal charges against sitting president was stopped by the U.S. Federal Reserve’s raise in short-term interest rates in December and indication for faster pace of increases in 2017.

Regardless of the upward spiral in local bond yields tracking the movement in U.S. benchmarks, the Korean central bank reassured to keep the monetary policy loose in tune with the government’s pledge for fiscal expansionary direction for next year.

The government on Thursday said it would expedite largest-ever fiscal spending in the first quarter by increasing fiscal and policy fund budget by 21 trillion won ($17 billion) to kick-start the economy after lowering its 2017 growth outlook to 2.6 percent from previous 3.0 percent.

By Boo Jang-won

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]