BOK dismisses deflation concerns

Bank of Korea Gov. Lee Ju-yeol said Monday the central bank would take the country’s macroeconomic situation into close account when implementing its monetary policy for the rest of this year.

In a press meeting to mark the first anniversary since he took office as the country’s top monetary policymaker, the governor reiterated that BOK had to cut its key base rate to give momentum to growth. April 1 will mark Lee’s first year in office.

Despite increasing risks stemming from high household debt, it had to support economic growth as the country’s gross domestic product and consumer price growth were projected to fall well short of its initial expectations.

“Monetary policy is not a panacea. As with all economic policies, the central bank’s monetary policy will bring both positive and negative effects,” Lee told reporters.

“We will make efforts to reach the best policy decision by comparing the two, and we made our decision based mostly on macroeconomic risks.”

He said that Korea’s inflation was not turning negative and that it was not facing a recession, despite growing concerns over the country’s prolonged low growth and consumer prices.

Although it will be difficult not to face short-term risks and uncertainties, Korea’s economy will moderately improve amid a recovery outlook for the global economy and the government’s reform moves.

“Korea has a low chance to fall into recession and deflation,” Lee said.

“Low consumption is a concern though, rather than exports.”

He added that the central bank was not in a position to send a clear signal regarding its rate policy amid increasing risks and uncertainties facing the economy.

The BOK unexpectedly cut its key interest rate to a record low of 1.75 percent earlier this month. The central bank forecast the country’s growth to reach 3.4 percent this year, with inflation at 1.9 percent. Market observers said that it may revise its growth and inflation outlooks at the central bank’s next monetary policy meeting in April.

Lee said the central bank alone cannot deal with household debt and that it would need cooperation with the government and the political parties to stabilize the debt situation.

Korea will need to devise measures to sustain the low-income group, in particular, which remains financially vulnerable due to high debt.

“We will need to strengthen our precautionary measures to buffer the low-income group against a possible shock from high debt,” Lee said.

By Park Hyong-ki (hkp@heraldcorp.com)