From the economic conditions alone, the Bank of Korea should raise interest rates, but will act upon “prudent judgment” due to various risks at home and abroad, said governor Lee Ju-yeol entering his second term.
“Since the rate level is sufficiently accommodative, one or two hikes won’t mean a change in the monetary policy to a tightening posture,” Lee told lawmakers Wednesday in a confirmation hearing following his reappointment by the president.
Lee predicted the demand-end inflation to stay subdued and reiterated to keep monetary policy accommodative to aid economic growth.
The U.S. Federal Reserve in its first meeting chaired by Jerome Powell is highly expected to deliver a 25-basis point hike this week to bump up the fed fund rate target to 1.50 percent-1.75 percent. Given the labor vitality and growth pace in the U.S. economy, the central bank could speed up tightening and deliver four hikes this year instead of three indicated by his predecessor.
From the dovish comments from Lee who administered the first hike in November during his first four-year term, the BOK is expected to trail the Fed move by 25 to 50 basis points. The Korean benchmark rate is currently at 1.50 percent.
"The bank will closely watch the downside risks such as high volatility in the global financial market and yawning household debt,” said Lee.
Lee whose four-year term ends on March 30 earned a second term. Under the Bank of Korea law, the governor can serve up to two terms, but there had been only two precedents and none since the BOK governor chaired the monetary policy committee since 1998.
“I think I was reappointed to maintain the central bank’s neutrality and keep monetary policy consistent,” said Lee.
As the country’s potential growth is weighed down by demographic factors such as low birthrate and rapidly aging population, Korea’s benchmark rate cannot go back to the 4-5 percent levels of pre-2008 global financial crisis, he said.
By Kim In-oh and Cho Jeehyun
[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]