BOK’s rate policy will hinge on economic recovery, not inflation: gov

2017.10.02 14:10:25 | 2017.10.02 15:36:44

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Bank of Korea Governor Lee Ju-yeol indicated that the central bank could navigate monetary policy in tune with economic and financial market recoveries regardless of subdued demand-led inflation.

He indirectly indicated a shift in the key interest rate that has been kept at a record low of 1.25 percent since June last year by citing U.S. Federal Reserve Chair Janet Yellen’s recent comments.

“Yellen said it would be imprudent to keep monetary policy on hold until inflation is back to 2 percent as it could stoke bigger inflation problem later on and undermine financial stability in the long term, and I agree with this judgment,” he told reporters in a workshop on Friday when asked if the BOK could move to raise interest rates while demand-spurred inflation remained low.

Amid slow-moving economy, Korea’s inflation has been below the target of 2.0 percent since 2012. Consumer prices are expected to gain 1.9 percent this year mostly from higher food and oil prices.

The central bank and the financial authorities are more engrossed with keeping the markets less jittery against escalating geopolitical risks from North Korean nuclear and missile threat and the possibility of a military conflict.

“Foreigners have turned nervy as they net-sold in mass-scale on Sept. 26 and 27. There have not been extraordinary movements since then, but our market volatility could worsen if normalization in interest rates and monetary policy across the world is coupled with increased geopolitical risks,” he said.

The BOK will release revised outlook for this year’s economy and the next on Oct. 19 when it decides on monetary policy for October.

By Lee Seung-yoon

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