South Korea's top central banker on Thursday took a cautionary stance on the country's ever-growing household debt level, seemingly taking a step back from an additional rate cut.
"Because of the increase in household debt since October, we are very closely paying attention to ensuring financial stability in Korea," Bank of Korea Gov. Lee Ju-yeol told reporters when asked about the central bank's monetary policy.
The BOK will take time to measure the effects of last year's rate cuts in August and October, Lee added.
His remarks come as critics are raising views than an additional rate cut will further stoke the country's household debt, which sharply rose following the two rate cuts that drove down the base rate to a record low of 2 percent.
Household loans extended by banks grew at a record 37 trillion won ($34 billion) last year, with more than half of the total made in the second half.
Regarding economic growth, the top central banker projected recovery to improve this year, rebutting worries over slowing growth triggered by the BOK's sharp downward revision of this year's growth outlook.
Last week, the BOK slashed its growth outlook for 2015 to 3.4 percent from 3.9 percent, citing "exceptional" factors in the fourth quarter, such as a fall in spending on telecommunications products after the government tightened subsidies for mobile devices.
The revised estimate is lower than the finance ministry's growth estimate of 3.8 percent for the year.
"I do realize that some took it as a mild surprise that we had undertaken a downward revision. Let me reiterate that this is because of the exceptional factors in the fourth quarter of last year and we do not have a pessimistic or grim view of the Korean economic outlook for this year," the BOK governor said in a press conference.
Lee said the mid-3 percent level is "largely in line with the potential growth rate" and that because quarter-on-quarter growth is forecast to reach 1 percent, the recovery will be better this year compared with last year if the trend continues.
Asia's fourth-largest economy is estimated to have expanded 3.3 percent last year, down from an earlier projection of 3.5 percent, according to the BOK.
Lee noted that while a prolonged decline in oil prices can trigger negative effects, it is largely positive for economic growth, citing a macroeconomic model that forecasts gross domestic product to improve 0.1 percentage point when oil prices fall 10 percent.
"Some raised the concern of lower oil prices leading to deflation, but we do not believe that deflation will come any time soon in the near future," he added.
The top central banker spent a significant portion of the press conference voicing support for the government's structural reform agenda. Seoul is moving to reform the labor market to boost growth under its "474 vision" plan that aims for a potential growth rate of 4 percent and an employment rate of 70 percent.
"In the course of structural reform at the corporate level and also in the course of labor market reform, there might be some temporary slowdown in economic growth, but we do not believe the impact will be large or long-lasting," Lee said. "In the mid- to- long-term, structural reform will actually be beneficial to economic growth." (Yonhap)
