South Korea's central bank said Wednesday that it will keep an accommodative monetary policy next year to prop up the economic recovery, with the annual inflation target set at 2 percent.
"The Bank will maintain its accommodative monetary policy stance, considering macro-economic conditions such as the domestic economic and inflation trends," said the Bank of Korea in a report on its annual monetary. "The Bank will pay close attention to the possibility of a buildup in financial imbalances in line with the increase in household debt."
The BOK raised the key rate by a quarter percentage point to 1.75 percent last month in a bid to tackle the country's mounting household credit, which surpassed 1,500 trillion won ($1.33 trillion) in the third quarter.
It was the second rate hike in the recent 13 months and signaled that the central bank will place its policy focus on reducing liquidity in the market.
The central bank said Asia's fourth-largest economy is on the right track to roughly meet its potential growth of 2.8-2.9 percent next year on the back of brisk exports and the government's fiscal expansion. The BOK earlier set its 2019 growth prediction at 2.7 percent.
"As it is forecast that the domestic economy will continue to grow at a rate that does not diverge significantly from its potential level, and that the demand-side inflationary pressures will not be large, the Bank will maintain its accommodative monetary policy stance," it noted.
But it will keep close tabs on downside risks, such as the monetary policy normalizations of major economies and escalating uncertainties over the U.S.-China trade disputes.
"It will determine whether any future adjustment in the degree of accommodation is necessary," the BOK said.
The central bank will also make constant efforts to keep the consumer prices growth under the 2 percent level in the mid to long term.
Starting in 2019, the BOK will not specify the timetable for the inflation target to improve its policy stability.
"We've been resetting the inflation target rate every three years for a decade," Deputy Gov. Chung Kyu-il said in a press briefing. "Now the inflation has moved steadily for the 10-year period like advanced countries. We will not change the 2 percent inflation target rate unless there is a particular reason."
Instead, the central bank will review the system every two years to check whether the scheme runs as planned.
South Korea's consumer price index rose 2 percent in November, on par with the 2 percent line for two months in a row. (Yonhap)