Primary Purpose
The primary purpose of the Bank is to pursue price stability.
Under the Bank of Korea Act (Article 1), the primary purpose of the Bank is pursuing price stability so as to contribute to the sound development of the national economy. The Bank of Korea implements this target through adjustments to its reference interest rate, the Base Rate.
The purchasing power of money depends on prices. When prices rise, the same amount of money buys less than before. Therefore, it is naturally the task of a central bank to safeguard the value of the money by keeping inflation low.
Prices are influenced by various factors such as corporate investment, household consumption and international prices of raw materials. Meanwhile, among the various policy instruments to bring about price stability, the monetary policy of a central bank, which adjusts the quantity of money in circulation, is the most effective.
For these reasons, the responsibility for price stability is given to central banks in most countries. The Bank sets and announces an inflation target for a certain period and strives to meet this target. The 2010–12 target is consumer price inflation of 3.0± 1%.
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