BOK chief pens rosier forecasts for economy, downplays inflation

South Korea’s central bank chief said Wednesday that the nation’s economy could be expected to see a faster recovery from COVID-19 woes than anticipated in the bank’s previous forecast of 3 percent, while downplaying inflation risks that could stem from the rebound.

In a nod toward the vaccination campaigns of major economies, which are picking up speed, Bank of Korea Gov. Lee Ju-yeol projected that Korea would see a faster-than-expected recovery of its exports and facility investments.

“If the National Assembly passes the latest extra budget, it is likely to boost the economic recovery as well,” Lee said in a written briefing with reporters. Earlier this month, the government proposed an extra budget of 15 trillion won ($13.3 billion) for another round of financial aid for small businesses, self-employed businesspeople and households struggling under the pandemic.

The extra budget, the third-largest ever, will be used to fund the 19.5 trillion won relief aid package, the fourth of its kind, to alleviate the hardships imposed by the pandemic.

At the same time, Lee added, the path to recovery depends on the COVID-19 pandemic and the vaccination efforts. The state of the global semiconductor industry and heightening trade tensions between the US and China pose risks to the recovery, Lee noted.

Echoing US Federal Reserve Chair Jerome Powell’s recent remarks, Lee downplayed a possible spike in inflation as the economy continues to rebound.

“With the oil prices picking up pace and food prices rising, there have been concerns about inflation,” Lee said.

“The quick containment of the pandemic could release some pent-up demand, leading to temporary inflation, but it is unlikely to be prolonged,” he added.

Regarding its monetary policy, the BOK at the moment has no plans to normalize its monetary policy earlier than anticipated, despite its optimistic projections for this year. The BOK has reiterated its willingness to maintain its monetary easing stance to prop up the nation’s economy.

Despite the BOK’s cautious stance on the matter of a central bank digital currency, Lee said that currency would eventually displace private cryptocurrencies and lead to their devaluation.

The BOK is devising a central bank digital currency pilot program, but stresses that its move is “irrelevant” to the actual issuance of the currency.

Last month, the BOK kept the nation’s 2021 growth outlook at 3 percent in its latest update and said the economy could be expected to grow 2.5 percent in 2022.

By Jung Min-kyung (mkjung@heraldcorp.com)