BOK vows to meet inflation target in medium term

South Korea's central bank said Thursday it will make efforts to achieve its inflation target of 2 percent for this year in the medium term, as it hinted an exit from record-low interest rates amid signs of a strong recovery from the COVID-19 pandemic.

In a regular monetary report, however, the Bank of Korea (BOK) said it will maintain the current easing of monetary policy "for the time being" to support an economy recovery.

"Monetary policy will stay accommodative for the time being," the BOK said in the report, adding that it will work to stabilize consumer prices at a target of 2 percent this year.

Last month, the BOK sharply raised its 2021 growth outlook to 4 percent while holding its benchmark policy rate unchanged at a record low of 0.5 percent, as exports showed a strong rebound.

The BOK's February forecast was that South Korea's economy would grow 3 percent this year.

BOK Gov. Lee Ju-yeol said the pace of economic recovery was faster than expected but more patience is necessary on monetary policy.

However, Lee sounded a slightly hawkish tone when asked about the possibility of a rate hike this year, saying that such a hike "depends on the pace of recovery."

The BOK has also raised its forecast on inflation to 1.8 percent this year, compared with its earlier forecast of 1.3 percent.

In May, South Korea's consumer prices grew at the fastest pace in more than nine years on higher prices of farm and oil products, underscoring that inflationary pressure is building up.

The consumer price index rose 2.6 percent on-year in May, faster than a 2.3 percent on-year gain the previous month.

It marked the fastest on-year increase since April 2012, when the price index rose 2.6 percent.

Exports, which account for about half of the nation's gross domestic production, shot up 45.6 percent on-year in May due to strong overseas demand for chips amid the global economic recovery, following a 41.1 percent jump in April.

To boost the pandemic-hit economy, the BOK cut the key rate to the all-time low of 0.5 percent in May last year after delivering an emergency rate cut of half a percentage point in March last year. (Yonhap)