The Bank of Korea assesses that chances of stagflation, a period of simultaneous stagnant economic growth and high inflation, are low.
BOK Deputy Governor Park Jong-seok presented his views at a news briefing on Thursday, citing domestic economic conditions.
He brushed off concerns over a stagflation, noting that the Korean economy is expected to grow at a faster pace than its potential growth rate.
The deputy governor projected private consumption to lead growth, citing a significant rise in consumption in face-to-face services in the second quarter after the government lifted almost all social distancing rules.
Private spending will increase at a more solid pace than expected, although export growth may stall, the policymaker said.
The central bank also downplayed the possibility that the U.S. Fed’s “big-step” or half a percentage point rate hike may lead to a massive outflow of capital from the Korean market.
Park said a rapid capital outflow is rather unlikely, with spending recovery gaining momentum in Korea and the country maintaining a surplus current account.
Regarding the central bank’s monetary policy, Park told reporters that the BOK does not rule out the possibility of a “big-step” of its own, but for now, it believes a zero-point-25 percentage point rate hike will be more appropriate.
Source: KBS World Radio