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BOK chief sidesteps talk of interest rate increase

Imminent Fed hike spurred forecasts that Korea would follow
June 13,2018
The chief of Korea’s central bank on Tuesday vowed that he would stick with an accommodative monetary policy, cutting short analysts’ expectations of an imminent key rate increase.

Bank of Korea (BOK) Gov. Lee Ju-yeol said that the bank will maintain its loose monetary policy aimed at stimulating the economy through the second half of this year.

“The Korean economy seems to continue to show steady growth,” the governor said in a ceremony celebrating the 68th anniversary of the central bank. “[The Bank of Korea] needs to keep an accommodative monetary policy, since inflation pressure is not so strong on the demand side.”

Attention was focused on any comment from Lee hinting at a rate hike. The BOK lifted interest rates from a record-low 1.25 percent to 1.5 percent last November for the first time in six and a half years.

But Lee said the BOK will take a cautious approach, and he didn’t discuss raising interest rates.

“[The BOK] will carefully judge the need for further adjustment to its monetary policy while factoring in growth, inflation, the monetary policy direction in other countries and economic stability,” he said.

Some analysts see a further increase in the BOK’s interest rate as imminent, as the United States is on track to increase its rate.

The U.S. Federal Reserve will hold a two-day meeting starting on June 12. It is widely expected that the American central bank will raise interest rates for the second time this year, from 1.75 percent to 2.00 percent.

Theoretically, the rising rates in the United States will trigger a capital flight from Korea.

Lee’s comments came as Korea posted mixed economic data.

While the country’s exports continue to grow at a stellar pace, the jobs report painted a grimmer picture. Korea’s unemployment rate hit a 17-year low April due to the minimum wage hike and corporate restructuring.

Lee played down the impact of economic fluctuation in emerging markets, such as Turkey and Argentina.

“It is unlikely that the effects will spill over to Korea, because we are fiscally sound,” he said.

Despite the headwinds, Korea’s economy is still on track to grow 3 percent this year, according to Lee.

The governor went on to note that the central bank will discuss new roles for the BOK and research areas into the North Korean economy following the historic summit between U.S. President Donald Trump and the North’s leader Kim Jong-un on Tuesday.


BY PARK EUN-JEE [park.eunjee@joongang.co.kr]