BOK's Rhee warns against quick rate cut

Bank of Korea Gov. Rhee Chang-yong speaks at Jeju Forum held on Jeju Island on Friday. [KOREA CHAMBER OF COMMERCE AND INDUSTRY]

Bank of Korea (BOK) Gov. Rhee Chang-yong on Friday advised the public not to expect a rate cut any time soon.

“Do not place great hopes in a [rate] cut since there are challenges in discussing a rate cut for the time being,” Rhee said at the Jeju Forum held on the island on Friday. The central bank will “take a macro view while monitoring the situation by the year-end.”

He added that the “framework of macroeconomic policy will be shaken” if the monetary policy's direction is not consistent.

But the central bank on the same day said that the governor did not imply that there would not be any rate cuts within this year.

The bank issued the elaboration after some media quoted Rhee as saying, “do not expect a rate cut until the end of the year.”

Rhee on Thursday said the Monetary Policy Board cannot announce a date for its forward guidance as the economic forecast is ever-changing.

“Rate cuts will be discussed when [the Monetary Policy Board] feels certain that inflation has sufficiently converged to the target 2 percent,” Rhee said at a press conference. It would not be appropriate to state a specific time on when this could happen, he added.

Korea’s consumer inflation hit a 21-month low of 2.7 percent in June from a year earlier. But the central bank expects inflation to rise again in the coming months.

The Monetary Policy Board on Thursday kept the rate steady at 3.50 percent for the fourth consecutive time, citing inflation and risks that remain in the financial sector such as rising household debt.

During Friday's forum, Rhee said big uncertainties remain in China.

“The United States and China make up the two pillars of our exports. The United States' economic growth rate is expected to rise, which is good news for us. But uncertainties remain in China. Its growth in the second half of next year could be a little more uncertain.”

Korea’s growth rate will be determined by the speed of chip price recovery, Rhee added.

BOK projects the Korean economy to grow 1.4 percent this year.

BY JIN MIN-JI [jin.minji@joongang.co.kr]