BOK chief hints at rate hike this year

BOK Gov. Lee Ju-yeol (Yonhap)

Bank of Korea Gov. Lee Ju-yeol said Friday that a key interest rate hike is plausible by the end of this year in step with economic recovery.

“If our economy is expected to stage a modest recovery, (the BOK) will normalize the current easing of monetary policy in an orderly way at an appropriate time,” Lee said in a statement to mark the 71st anniversary of the BOK’s foundation.

Earlier in April, the BOK froze its key interest rate at a record low of 0.5 percent amid concerns of another wave of coronavirus infections. The BOK has kept its benchmark interest rate there since May last year to provide liquidity to banks, businesses and households hit hard by the COVID-19 crisis.

“When to start the normalization of monetary policy will be determined in accordance with the virus situation, the pace of economic recovery and risks over financial imbalances. Making adjustments to the nation’s quantitative easing stance depending on its economic progress is crucial for promoting a sustainable economic growth.”

Lee gave a stronger signal for a possible rate hike than before when he said. “if the economic situation improves, then there is a need to adjust the measures in line with the situation,” late last month. 

The move came as Asia’s fourth largest economy has shown clear signs of recovery, buoyed by a robust recovery in exports.

Exports, which account for about half of the nation’s gross domestic product, jumped 40.9 percent on-year in the first 10 days of June as demand for chips and automobiles stayed strong amid the improving global economy.

The country’s outbound shipments stood at $17.3 billion in the cited period, compared with $12.3 billion a year earlier, according to the data from the Korea Customs Service.

“The recovery of the Korean economy is likely to strengthen thanks to the buoyancy of exports and investment as well as the improvement in private consumption,” Lee said. 

The nation’s consumer sentiment rose to the highest level in almost three years in May amid an economic recovery, central bank data showed. 

Meanwhile, Lee also voiced concerns over growing financial imbalances caused by a recent boom in stock and property markets, boosted by ample liquidity and cheap loans following the government’s pandemic-era stimulus measures. 

“While the pandemic-era monetary easing policy prevented the country fall into deep recessions, instability of the economy rose due to rising debts as well as imbalances between the real economy and asset markets,” Lee said.

By Choi Jae-hee (cjh@heraldcorp.com)


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