Lee Ju Yeol, governor of the Bank of Korea, hits a gavel as he starts a monetary policy meeting at the central bank’s headquarters in Seoul (file). Ju-yeol yesterday declined to publicly take a view on domestic interest rates at a scheduled news conference, and instead focused on downside risks facing the economy.
South Korea’s central bank held its main interest rate steady at a record low yesterday as expected, just days before the US Federal Reserve decides whether to pull the trigger on a much-anticipated policy tightening.
The Bank of Korea’s monetary policy committee held its base rate steady at 1.50% for a sixth straight month, as all 31 analysts surveyed in a Reuters poll had expected.
Governor Lee Ju-yeol declined to publicly take a view on domestic interest rates at a scheduled news conference, and instead focused on downside risks facing the economy, among them falling oil prices and overall global sluggishness — offering no major change from previous statements.
“There was nothing surprising from Lee’s press conference. He didn’t mention anything about lower rates, and his comments were viewed as neutral,” said Kathleen Oh, economist at Standard Chartered Bank in Seoul.
Oh forecast that rates would be kept on hold through 2017. “I think Lee was just cementing his previous stance ahead of the Fed,” she said.
A slim majority in the same Reuters poll saw no change in South Korea’s policy interest rates for an extended period of time, while just over a third saw a rate cut early next year.
The Bank of Korea has said that even if the Fed raises interest rates next week, South Korea’s vast foreign reserves and current account surplus will shield the economy from immediate shocks.
Policymakers are wary, however, of possible risks that may emerge from vulnerable economies after any Fed rate hike is implemented. Lee said yesterday the BoK will watch warily for any possible ripples from emerging economies after the Fed rate hike.
Governor Lee has proven hesitant to cut rates further as household debt continues to snowball, while headline inflation is expected to continue rising albeit at a very slow pace, according to the central bank. “Household debt has been rising quickly, and ever since regulations were eased, borrowing has been outpacing wage growth. There is a need to quickly implement measures to rein in household debt,” Lee said.
The governor added that new measures to slow growth in borrowing, developed jointly by other government agencies, would be announced soon. Meanwhile, the formation of the central bank’s new three-year inflation target band is in the final stages, Lee said, and will be announced next week.
The current inflation target band is 2.5 to 3.5%, although actual headline inflation has stayed well below the bottom band for nearly as long as the target has been in force.
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