Kim Rahn is the managing editor of The Korea Times. Since joining the company in 2003, she has covered various beats including the presidential office, Seoul city government, the Bank of Korea and the tourism industry. In 2014, she won the Society of Publishers in Asia (SOPA) award for her coverage of the ordeals of migrant women in Korea.
Interest rate hike in the offing
By Kim Rahn
Lee Ju-yeol BOK governor nominee
By Kim Rahn
Korea’s top central banker nominee hinted on Monday that he may tip monetary policy toward credit-tightening once he takes office in April.
He believes that on the issue of household debt, there is room for the Bank of Korea (BOK) to hike the key rate because the current level of debt will be able to handle a degree of rate increase.
“About 70 percent of debts are held by people in the upper 40 percent in terms of income, and a modest rate hike will not largely increase the amount of interests which debt holders have to pay,” Lee Ju-yeol, the BOK governor nominee, said Monday in a report to the National Assembly before his Wednesday confirmation hearing.
He also said that its monetary policy can be affected by the U.S. Federal Open Market Committee, which started discussing an early rate increase in the January meeting.
“If the chance of the U.S. Federal Reserve’s early rate hike gets higher and a massive outflow of foreign capital from Korea is expected, we will face the pressure for a rate increase, too,” Lee said in the report.
“The BOK’s monetary policy committee will set the rate by considering not only the Fed’s policy change but also other various factors of the economy such as price.”
On Thursday, the central bank froze the key interest rate for the 10th-straight month at 2.5 percent.
However, Lee said people in the low-income brackets may suffer another quite serious blow.
“So the nation will have to prepare for the impact of rate hikes in the future by relieving financial burdens of specific groups including people in the low-income brackets or the self-employed, and improving household debt structures,” he said.
The governor nominee also called for a larger role for the central bank.
While the government plans to spin off a consumer protection function from the Financial Supervisory Service and set up a separate agency in the first half of this year, Lee said that central banks in advanced nations have had stronger roles in establishing financial stability and supervising financial firms after the global financial crisis.
“Korea should also accept the global trend and establish a system for macro-prudential policies,” he said.
Lee also downplayed the chance of deflation for now. “But deflation does massive damage to the economy once it starts, so we need to remain vigilant of possible deflation and prepare contingency plans. If the chance of deflation increases, the central bank will take all possible monetary policies to prevent it.”