(2nd LD) BOK-inflation forecast

(2nd LD) BOK sees inflation slowing down to 2 pct late next year

(ATTN: ADDS BOK chief's remarks in last 2 paras, 1st photo)

SEOUL, Dec. 20 (Yonhap) -- South Korea's inflation will continue its downward trend, falling to 2 percent late next year, although its pace of decline will be slower than expected, the central bank said Wednesday.

In a report, the Bank of Korea (BOK) said consumer prices in Asia's fourth-largest economy are unlikely to show a sharp drop in inflation this month as was seen in November.

"November's inflation posted a significant drop due to a decline in oil prices and agricultural products, but such a sharp deceleration is unlikely down the road," it said.

"Consumer prices for December will be similar to those in November, or slower than the previous month, and its slowdown pace will continue to drop to 2 percent late next year," it added.



South Korea's inflation grew at a slower pace last month, though it stayed above 3 percent for the fourth consecutive month amid the high prices of energy and farm goods.

Consumer prices, a key gauge of inflation, rose 3.3 percent in November from a year earlier, compared with the 3.8 percent on-year increase the previous month, marking the first time in four months that the annual price growth has eased.

Last month, the BOK kept its key interest rate unchanged at 3.5 percent for the seventh straight time. The central bank delivered seven consecutive rate hikes from April 2022 to January 2023.

The central bank assessed that it is uncertain that inflation will be approaching its target level given uncertainties over a rise in public service fees and others.

Last month, the bank jacked up its inflation forecast for next year to 2.6 percent from its earlier estimate of 2.4 percent.

A possible rebound in oil prices, a rise in international farm goods caused by extreme weather and cost-push spillover effects will add upward pressure on inflation.

More specifically, a rise in utility costs, such as electricity and gas, will put more pressure on inflation, it added.

"A slowdown in inflation will be expected to continue, but it is judged to be too early to ease vigilance against inflation," BOK Gov. Rhee Chang-yong said during a meeting on the price stabilization assessment.

The governor said the last step to bring inflation back to the bank's target level of 2 percent will not be easy now, given the uncertainties, including the prices of raw materials and cost-push prices.

Rhee also said the chances of the Federal Reserve taking a step toward easing the policy are growing, which will help the BOK better deal with domestic risks.

Last week, the Fed kept its rate unchanged and hinted at possible cuts for 2024.

"It is true that the possibility of the Fed's rate cuts next year is rising, and financial markets took it as a relief, and the market stabilized," Rhee said. "We can better focus on domestic factors with our monetary policy."



sam@yna.co.kr

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