By Choi Kyong-ae
Bank of Korea Governor Lee Ju-yeol called for steps to curb the nation's snowballing household debt, Thursday, amid growing financial market uncertainties due to a possible imminent U.S. Fed rate hike.
"The biggest risk involving the U.S. rate hike is the possible spread of a crisis related to debt into emerging markets," Lee said. "We also need to take steps to keep household debt from rising further."
The bank held its benchmark rate unchanged at 1.5 percent for a sixth straight month Thursday after it opted to gauge the impact on the global economy and markets from the anticipated U.S. rate hike next week.
The BOK remained cautious a week before the Fed's possible move, maintaining its key rate at an all-time low as Korea's economy expanded 1.3 percent in the third quarter ended Sept. 30, the strongest quarter-on-quarter growth in five years, analysts said Thursday.
Lee doesn't expect massive capital flight from Korea unlike in emerging markets due to its solid fundamentals such as a strong current account surplus.
But the Chinese yuan's further weakening against the dollar will hurt the competitiveness of Korean exporters, he warned.
Looking ahead, "the global economy except for the U.S. is not showing signs of recovery and further declines in oil prices are increasing downside risks to the inflation outlook for next year," the governor said.
His remarks were interpreted by analysts as a signal that the BOK may lower its economic outlook next month for growth and inflation for 2016. In October, the central bank forecast 3.2 percent growth and 1.7 percent inflation next year.
The state-run Korea Development Institute took a dim view of Asia's fourth-biggest economy, Wednesday, with a growth estimate of 3 percent for 2016, and 2.6 percent for 2015, lower than the BOK's 2.7 percent.
Lee acknowledged that the third-quarter growth was helped by the government's stimulus packages which include temporary individual consumption tax breaks from August through December, not by improvement in consumer sentiment.
Declining exports were also cited by him as a major headache to the road to recovery. Exports from the January to November period fell 7.4 percent to $486.6 billion from the previous year, BOK data showed.
Brokerages such as Nomura and HSBC have expected growing household debt and weak exports to weigh on spending, with lower oil prices leading to lower inflation.
"We don't exactly worry about any acute financial stress that this might engender, but it's clearly not a sustainable strategy to grow the economy," Frederic Neumann, co-head of Asian Economics Research at HSBC, stated in a research document.
They expect the BOK to take further easing to support growth in the coming quarters.
HSBC Chief China economist Qu Hongbin said slowing demand in China, a huge market for Korean firms, will be a major drag on the local economy next year.
"Looking ahead, while working to sustain the recovery of economic growth, the board will conduct monetary policy so as to maintain price stability over a medium-term horizon and pay attention to financial stability," the BOK said in a released statement on its monetary policy decision.
Slowing growth in China has often been blamed for the decline in Korea's exports, as the neighboring country is the world's single largest importer of its goods.
 |
| Bank of Korea Governor Lee Ju-yeol presides over a monetary policy committee at the bank in Seoul, Thursday. / Yonhap |
"The biggest risk involving the U.S. rate hike is the possible spread of a crisis related to debt into emerging markets," Lee said. "We also need to take steps to keep household debt from rising further."
The bank held its benchmark rate unchanged at 1.5 percent for a sixth straight month Thursday after it opted to gauge the impact on the global economy and markets from the anticipated U.S. rate hike next week.
The BOK remained cautious a week before the Fed's possible move, maintaining its key rate at an all-time low as Korea's economy expanded 1.3 percent in the third quarter ended Sept. 30, the strongest quarter-on-quarter growth in five years, analysts said Thursday.
Lee doesn't expect massive capital flight from Korea unlike in emerging markets due to its solid fundamentals such as a strong current account surplus.
But the Chinese yuan's further weakening against the dollar will hurt the competitiveness of Korean exporters, he warned.
Looking ahead, "the global economy except for the U.S. is not showing signs of recovery and further declines in oil prices are increasing downside risks to the inflation outlook for next year," the governor said.
His remarks were interpreted by analysts as a signal that the BOK may lower its economic outlook next month for growth and inflation for 2016. In October, the central bank forecast 3.2 percent growth and 1.7 percent inflation next year.
The state-run Korea Development Institute took a dim view of Asia's fourth-biggest economy, Wednesday, with a growth estimate of 3 percent for 2016, and 2.6 percent for 2015, lower than the BOK's 2.7 percent.
Lee acknowledged that the third-quarter growth was helped by the government's stimulus packages which include temporary individual consumption tax breaks from August through December, not by improvement in consumer sentiment.
Declining exports were also cited by him as a major headache to the road to recovery. Exports from the January to November period fell 7.4 percent to $486.6 billion from the previous year, BOK data showed.
Brokerages such as Nomura and HSBC have expected growing household debt and weak exports to weigh on spending, with lower oil prices leading to lower inflation.
"We don't exactly worry about any acute financial stress that this might engender, but it's clearly not a sustainable strategy to grow the economy," Frederic Neumann, co-head of Asian Economics Research at HSBC, stated in a research document.
They expect the BOK to take further easing to support growth in the coming quarters.
HSBC Chief China economist Qu Hongbin said slowing demand in China, a huge market for Korean firms, will be a major drag on the local economy next year.
"Looking ahead, while working to sustain the recovery of economic growth, the board will conduct monetary policy so as to maintain price stability over a medium-term horizon and pay attention to financial stability," the BOK said in a released statement on its monetary policy decision.
Slowing growth in China has often been blamed for the decline in Korea's exports, as the neighboring country is the world's single largest importer of its goods.
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