Bank of Korea Governor Lee Ju-yeol said Monday that the central bank sees the need to lift the policy rate from current record-low level after inaction for the longest-ever period, but won’t shift to tightening cycle until clear signs of economic recovery and stability in consumer prices.
Answering to lawmakers’ questions in the regular parliamentary probe on government offices, Lee said the bank thinks time has come to lift the interest rates from a historic low, but “we must have clearer signs if we are to make it (rate increases) our policy.”
“We will consider raising the policy rate on solid signs of recovery and inflation near at (2 percent) target level,” he said.
Since interest rates have been kept “loose” to accommodate the economy, the scope of easing can be moderated once the economy is on a recovery phase, he said.
To meet the conditions, the economy would have to run at its growth potential pace of 2.8 percent to 2.9 percent, and inflation at 2 percent, he said.
He, however, said the BOK does not necessarily have to match action of the U.S. Federal Reserve.
The Fed is expected to raise the fed fund rates by another 25 basis points in December to a range of 1.25 percent to 1.50 percent, and the government yields jumped on anticipation that the BOK could take a preemptive action to push up the policy rate to 1.50 percent in November after the governor made his clearest-yet indication of a hike last week.
The benchmark three-year government bond yield closed Monday 5.6 basis points down at 2.032 percent, and the five year bond 3.2 basis points down at 2.267 percent. The main Korean composite stock price index Monday finished 0.02 percent up at 2,490.05.
By Kim Gyu-sik and Lee Ha-yeon
[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]