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| Bank of Korea (BOK) Governor Lee Ju-yeol |
By Lee Kyung-min
Bank of Korea (BOK) Governor Lee Ju-yeol is under growing pressure to lower the key interest rate after central banks in developed countries have been showing signs of going back to credit easing policies amid a global slowdown.
The renewed dilemma came only four months after the last hike in November 2018. The current rate of 1.75 percent came a year after the previous increase mostly due to fears of massive capital outflow and a sluggish domestic economy.
Most recently, the International Monetary Fund (IMF) recommended a "rate cut" as part of its policy suggestions alongside drawing up a supplementary budget of about 9 trillion won ($7.9 billion), about 0.5 percent of the country's GDP.
On March 12, Tarhan Feyzioglu, head of the IMF Mission to Korea, essentially suggested the central bank should lower the key rate, saying a further accommodative move would "not raise concerns over foreign capital outflows as the country implements a flexible currency policy."
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| U.S. Fed Chairman Jerome Powell |
Although the Korean economy remains fundamentally strong and resilient, he warned of growing headwinds to Asia's fourth-largest economy.
Given concerns over foreign capital outflows and rising household debt as two major factors behind the BOK rate hike four months ago, the central bank has little to defend against policy revision other than "financial stability," frequently cited as a reason to defend its decision.
This usually means a mixture of macroeconomic factors defined by their complex nature.
The BOK is further cornered by pressure from both home and abroad, with many central banks in advanced nations already having opted for a policy revision toward a more accommodative stance amid growing concerns over deepening global slowdown.
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| European Central Bank (ECB) President Mario Draghi |
Similarly, European Central Bank (ECB) President Mario Draghi said he would offer cheap loans to the eurozone's troubled banks, indicating a clear easing in lending policy alongside his pledge not to raise the benchmark rate ― currently 0 percent ― through the end of 2019.
The ECB's eurozone growth forecast for 2019 was sharply cut from 1.7 percent to 1.1 percent.
Draghi's change in stance came only three months after it halted quantitative easing in December 2018, which had ended a bond-buying spree that pumped $3 trillion of stimulus into the economy for nearly four years.
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| People's Bank of China (PBOC) Governor Yi Gang |
It cut required the reserve ratio (RRR) by 100 basis points in 2019, largely an extension of 2018's stance when it lowered the ratio by 3.5 percentage points in a one-year span through five separate cuts.
Bank of Japan Governor Haruhiko Kuroda is also under growing pressure to adopt a more "easing" policy from economists there following heightened concerns that the country's economy is weakening and increased likelihood that inflation will tilt toward zero or even below later in 2019.
Such a series of developments in the global scene continued prior to, during and after Lee's remarks made at the rate-setting policy board meeting in February, when he made it clear the BOK was not at a stage to consider a rate cut, stressing the monetary policy still remains "accommodative."
Mostly due to falling chip sales, Korea's exports in the first ten days of March decreased nearly 20 percent from a year earlier, following a drop of 12.6 percent in February and 5.9 percent in January, respectively.
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| Bank of Japan Governor Haruhiko Kuroda |
As a result, a number of organizations have rushed to cut outlooks for Korea's growth. Moody's Investors Services recently lowered 2019 outlook to 2.1 percent.
The February meeting was the second of eight scheduled for 2019. The next meeting is scheduled for April 18. Now all eyes are on BOK's move in the April meeting.
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