BOK to reset inflation target

The Bank of Korea said Monday it would reset its mid-term inflation target range sometime in the second half of this year, while reiterating that it would maintain its monetary easing for the time being.

In a policy briefing to the National Assembly’s Strategy and Finance Committee on Monday, BOK Gov. Lee Ju-yeol said that a new target for 2016-2018 would be established after reviewing economic conditions.

“We will seek an inflation target for 2016 (to 2018) that reflects the changing economic conditions,” Lee said.

The central bank’s inflation target for 2013-2015 was 2.5-3.5 percent. Analysts say the target for 2016-2018 will be lower than that of the previous three years. The BOK sets its three-year inflation target after close consultations with the government.

The country’s top monetary policymaker downplayed concerns of deflation, saying Korean inflation would be around 2 percent when excluding falling oil prices.

Lee added that the central bank would maintain its easy money policy for a while to support the country’s economic recovery.

However, it will have to closely take account of capital flows and household debts in an effort to stabilize the financial market when implementing its monetary policy.

Korea’s household loans issued by banks and nonbanks such as mutual savings banks increased by 64 trillion won last year, according to a report by the BOK submitted to the National Assembly.

Per-capita debt reached 21.5 million won. The government’s real estate stimulus, and loan-qualification deregulations and the BOK’s rate cuts had fueled household mortgages in 2014. The central bank cut its key interest rate twice last year to support the government’s stimulus measures.

As an alternative to its conventional monetary tools, the central bank will seek to extend its credit policy to boost loan facilitations to small and medium-sized enterprises should the economy face a slowdown.

“We will actively seek to (expand) loans to small and medium enterprises as part of our our efforts to stabilize the market,” Lee told the committee.

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