By Lee Hyo-sik
Staff Reporter
The nation's top banker said Thursday that the Korean economy will remain on a path of recovery, stressing the debt crisis currently engulfing four southern European economies will have limited impact on Korea's growth outlook.
Bank of Korea (BOK) Governor Lee Seong-tae also said consumer prices here will rise at a stable pace this year, dismissing the possibility that Asia's fourth-largest economy will suffer from hyper-inflation on soaring oil and other imported raw material prices, as it did in 2008.
His remarks came after the central bank kept its benchmark seven-day policy rate at 2 percent for the 12th consecutive month. The rate has been frozen since March last year, putting the brakes on its monetary easing cycle that trimmed it by 3.25 percentage points since October 2008 in the aftermath of the global financial crisis.
"With both Korea's outbound shipments and domestic demand continuing to show an upward trend, the economy is expected to expand at a steady rate this year. Gross domestic product (GDP) will likely grow at around the previously projected rate of 4.6 percent," Lee said.
The governor then said Europe's debt problem, China's credit tightening and the U.S. budget cut will not negatively affect Korea's economy. "The BOK will maintain an accommodative monetary policy stance for the time being, while keeping a close eye on possible side effects of the record-low interest rate."
For months, Lee had indicated that the central bank would soon hike borrowing costs to rein in rising real estate prices and other side effects of the eased monetary policy. But with the declining effects of fiscal spending and lingering global economic uncertainties, the BOK head has become reluctant to do so.
In addition, largely tamed consumer and falling housing prices in recent months, as a result of tightened mortgage lending rules, have turned the central bank more accommodative in its monetary policies. The top banker then said consumer prices rose at a steeper rate of 3.1 percent in January because higher oil and agricultural prices have raised the costs of various goods and services. The 3.1-percent growth was the highest increase since April 2009.
In particular, prices of vegetables and other fresh food items expanded 5.2 percent from the previous year, with the cost of gasoline and diesel jumping 18.4 percent.
"Consumer prices rose by a higher-than-expected rate last month. But inflation will largely remain stable this year," Lee said.
Analysts expect the BOK to maintain the current rate for the foreseeable future as the global economic outlook has become more uncertain on a host of downside risks, along with the end of Lee's term in April.
"If the central bank does not raise the key rate in March when the current head Lee presides his last rate-setting meeting, I think the key rate will remain at 2 percent for quite some time. Probably in September or October, the BOK will likely seriously consider raising the rate," LG Economic Research Institute economist Chung Sung-tai said.
Meanwhile, Vice Strategy and Finance Minister Hur Kyung-wook attended the BOK monetary policy meeting for second time. In January, Hur showed up at the meeting, becoming the first senior finance ministry official to do so in 11 years. It was seen by many as the government's attempt to rein in the central bank, hurting its neutrality.
leehs@koreatimes.co.kr
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