BOK to ease up on financial tightening as inflation softens

Finance

Published: 03 Jan. 2024, 18:47

BOK to ease up on financial tightening as inflation softens

Leading policy makers and chiefs of financial firms pose for a photo at a New Year's event in central Seoul. From left: Woori Financial Group Chairman Yim Jong-yong; Korea Development Bank Kang Seok-hoon; Korea Federation of Banks Cho Yong-byoung; Bank of Korea Gov. Rhee Chang-yong; Finance Minister Choi Sang-mok, Baek Hye-ryun, chairman of the National Assembly's Political Affairs Committee; Financial Services Commission (FSC) Chairman Kim Joo-hyun and Financial Supervisory Service (FSS) Gov. Lee Bok-hyun; Rep. Yoon Chang-hyun; Hana Financial Group Chairman Ham Young-joo; KB Financial Group Chairman Yang Jong-hee [YONHAP]

The chief of Korea’s central bank vowed to consider various economic conditions, in addition to inflation, in determining the key benchmark rate, hinting at a shift from the bank's current trend of monetary tightening in order to curb rising prices.

“Last year, most central banks were preoccupied with responding to high inflation,” Bank of Korea (BOK) Gov. Rhee Chang-yong said in a meeting with financial leaders on Wednesday.

“But the policy direction will likely vary country by country this year,” he said during the meeting, adding that the decision “will be affected by a multitude of factors like inflation, economic growth and stability.”

Rhee also noted that management of the risks stemming from the debt restructuring of Taeyoung Engineering & Construction will be a focus, a sentiment echoed by other leading policymakers including Financial Services Commission (FSC) Chairman Kim Joo-hyun and Financial Supervisory Service (FSS) Gov. Lee Bok-hyun.

Rhee predicted that inflation will continue to gradually decrease this year with the cycle of global monetary tightening coming to an end.

“It is important to successfully finish the long-running fight against inflation,” Rhee said

He also stressed that geopolitical risks, the fragmentation of global economies and upcoming major elections will add uncertainty to the market situation.

Both FSC Chairman Kim and FSS Gov. Lee called on banks to provide more financial support such as lower-rate loans to small merchants to help them navigate tough economic challenges.

President Yoon Suk-yeol pressed major banks to more actively engage in such measures, pointing to their record-high net profits driven mainly by loan interest and by the discrepancy between the interest rates for loans and savings products.

In response, the heads of Korea’s financial holding firms vowed to reinforce coexistence within society and push ahead with bold innovations in their various New Year’s addresses.

Other attendees included KB Financial Group Chairman Yang Jong-hee, Shinhan Financial Group Chairman Jin Ok-dong, Hana Financial Group Chairman Ham Young-joo and Woori Financial Group Chairman Yim Jong-yong.

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