More rate increases would not slow recovery, central bank says

Members of the central bank's rate-setting board said further rate hikes would not hamstring economic recovery, when they decided to increase borrowing costs in January, minutes from the latest policy meeting showed Thursday.

They also called for normalizing the loose monetary policy but noted that the process should be carried out by closely monitoring situations related to the pandemic, growth and inflation trends, according to the minutes from the monetary policy board meeting held on Jan. 14.

In the first rate-setting meeting of this year, the Bank of Korea raised the key interest rate by a quarter percentage point to 1.25 percent. It was the third rate increase since August, which brought the policy rate back to pre-pandemic levels.

The bank has called for the need to "normalize" interest rates kept low to keep the pandemic-hit economy going, citing growing concerns over inflation and household debt.

"The current interest rate remains at a significantly accommodative level and further rate hikes would not hamstring recovery trends of the economy and employment," a board member said.

"In addition, more rate increases would contribute to enhancing the resilience of our economy from external shocks by adjusting excessive leverage," the member added.

Another member said that there is no reason to delay bringing unprecedentedly low interest rates back to normal, saying benefits of tightening monetary policy would outweigh any possible negative impacts on economic recovery.

Meanwhile, one board member voiced dissenting views, saying that the rate should remain unchanged in January, worrying about the possibility of a slower-than-expected economic recovery in the first half of this year due to the fast spread of the omicron and a slowdown in the Chinese economy.

"Taking into consideration economic trends and the spread of infections, we are still in need for a 'make-up' strategy and conditions have yet to be created to warrant returning the rate to pre-pandemic levels," the board member said.

"There were two rate hikes in August and November and we need time to watch its ripple effect," the member added.

Korea has maintained tight curbs on business operations and gatherings of people amid a spike in coronavirus infections that topped 20,000 cases in recent days.

Yonhap