BOK chief says U.S. rate freeze brings stability

Finance

Published: 21 Mar. 2019, 19:51

BOK chief says U.S. rate freeze brings stability

Governor Lee Ju-yeol of the Bank of Korea answers reporters’ questions on his way to the office in central Seoul on Thursday. [YONHAP]

The chief of the central bank says the U.S. Fed’s decision to refrain from ranging its benchmark rate this year reduces uncertainties, but does not mean that Korea should cut its rate.

“The U.S. Fed has always been the key consideration for our monetary policy, but uncertainties have been reduced,” Governor Lee Ju-yeol of the Bank of Korea (BOK) told reporters on his way to the office Thursday.

After a two-day meeting, the Fed’s monetary policymakers voted unanimously to freeze its benchmark interest rate range between 2.25 percent and 2.5 percent, slashing its outlook for 2019 from the two increases predicted in December to no movement.

The result, he said, was more “accommodative” than expected, adding that the wait-and-see mode by the Fed will help stabilize global financial markets and allow for more flexibility in deciding Korea’s key rate.

A softening economic outlook, triggered by a slowdown in global trade, is thought to have contributed to the updated projection.

The downward pressure, however, has yet to reach the extent that clearly calls for the BOK to cut its rate, according to the governor.

“We will consider all factors and circumstances as with any change in rate decision, but now is not the time for a rate cut,” Lee said.

The governor went on to note that the current level of interest rate is seen as accommodative and is not tightening the economy too much.

The central bank has kept its benchmark interest rate unchanged at 1.75 percent since it lifted the rate in November last year.

Lee’s comment came after think tanks at home and abroad raised the need for further easing in monetary policy direction.

The mission chief at the International Monetary Fund who visited Korea last week said that a supplementary budget should be complemented with an “accommodative” monetary policy from the central bank.

“The BOK [should] ensure a clear monetary policy stance,” Tarhan Feyzioglu said, hinting at the need to lower the key interest rate.

Hyundai Research Institute also suggested earlier this month that the central bank change its stance from gradual rate normalization to lowering the rate, citing especially weak economic indicators in the first quarter.

The research institute noted that Korea is beset by unfavorable conditions, ranging from sluggish exports, a tepid jobs market and weak investment to the ongoing trade dispute between the United States and China, and geopolitical and economic uncertainties surrounding Brexit and North Korea.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]