BOK insists base rate will stayThe governor of the Bank of Korea on Wednesday reiterated that the U.S. interest rate hike will not lead to Korea’s base rate being increased, despite
the banks’ renewed 2 percent inflation target.
“It is clear that the U.S. Fed rate increase is an important factor for determining Korea’s benchmark rate,” Lee Ju-yeol said at a conference on economic trends with heads of economic research institutes, held at the bank’s headquarters. “However, it will not immediately lead to a higher BOK rate.”
The governor said international financial markets and the local market are showing “significant stabilization” even after the U.S. Fed increase. Referring to the latest upgrade in the country’s credit rating by Moody’s, Lee said this highlighted how the Korean market is faring well.
However, the BOK chief did make a point on future risks.
“Because the Fed rate hike isn’t just a one-time event, we can’t let our guard down,” he said. “In the process of the unprecedented quantitative easing being normalized, volatility in the movements of international funds and foreign exchange rates will amplify.
“There is no little risk in the global economy, including downward pressures on oil prices,” he added.
Considering uncertainties both at home and abroad, the BOK will operate its monetary policy as it closely monitors macroeconomic conditions and risks in the financial market, the governor said.
“Some have different interpretations about the BOK’s new inflation target,” Lee said. “The 2 percent target is not a short-term goal, but it is going to be pursued in the longer term.”
His remarks are seen to mean that the central bank won’t make a rate cut in order to meet the consumer price target.
The central bank also made a major change in its role from an inflation fighter to a deflation fighter. The 2 percent target is the lowest since 1998. The BOK has concluded that prices should grow at least 2 percent to support economic growth.
The 2 percent target marks a significant cut from a target band of 2.5 percent to 3.5 percent for the 2013-2015 period. However, it will mark a rise from actual inflation, which remained below 1 percent for 11 consecutive months until a 1 percent year-on-year gain in November, which was a 12-month high.
“Some forecast rate cuts in the near future, but making the target a single figure doesn’t mean we have to reach it in a short period of time,” Lee said.
BY SONG SU-HYUN [email@example.com]