SEOUL– South Korea’s central bank will properly adjust the extent of its monetary easing to the country’s economic improvement in 2022, the top central banker said Friday.
“The Bank of Korea will keep close tabs on the country’s economic growth and inflation before deciding on monetary policy changes next year,” BOK Gov. Lee Ju-yeol said in his address for the new year.
The central bank should also pay attention to any imbalance in the local financial markets and the impact of changes in monetary policies of major economies, Lee said.
Lee’s remarks were widely construed as hinting at the possibility of additional hikes in the country’s benchmark interest rate in the new year.
In late November, the BOK hiked its seven-day repo rate by 0.25 percentage point to 1 percent in a bid to tame inflation and household debt
The hike put an end to 20 months of the policy rate staying in the zero range after the central bank slashed it by a half percentage point to 0.75 percent in March last year. Two months later, it trimmed the rate again to an all-time low of 0.5 percent.
The rate had stayed at the record low level until August this year, when the central bank delivered its first pandemic-era rate hike of a quarter percentage point to help stimulate the pandemic-hit economy.
Lee also stressed that the central bank will closely monitor the country’s inflation and household and corporate debt.
“The central bank should check the possibility that high consumer prices may combine with inflationary expectations to cause rising inflation to stay longer than expected,” he said.
South Korea’s consumer prices rose 2.5 percent in 2021 from a year earlier due to surging energy costs and high prices of farm products. It marked the fastest pace in 10 years and accelerated from a 0.5 percent on-year gain in 2020.
The BOK chief said the central bank should collaborate with the government to help prevent household and corporate debts from posing a risk to the economy during the process of unwinding financial support for those hit by the pandemic.
South Korea’s household debt has been cited as the main drag on Asia’s fourth-largest economy as households’ high indebtedness is feared to undercut domestic demand and thus crimp economic growth.
Household credit stood at a record high of 1,844.9 trillion won (US$1.5 trillion) as of end-September, up 36.7 trillion won from three months earlier. The combined size of household and corporate debts was 2.2 times higher than the country’s nominal gross domestic product as of end-September, according to the BOK.
Source: Yonhap News Agency