BOK to keep monetary easing in 2018

By Kim Yoo-chul

The Bank of Korea (BOK) will basically maintain its accommodative stance next year, the BOK said Thursday.

“We will continue the stance of monetary easing next year as economic growth is expected to remain solid and inflationary pressure is not big,” the bank said in a report on its annual monetary policy strategy for 2018.

The BOK said it will “cautiously” adjust its monetary policy after thoroughly studying economic growth and inflation trends.

It jacked up its key rate by 0.25 percentage points for the first time in more than six years to 1.5 percent last month.

BOK Governor Lee Ju-yeol recently said households can withstand higher interest rates next year.

Analysts expect the BOK to raise its key rate once or twice next year as the rate is still at a record low level. The bank is under pressure to raise its rate on fears that higher U.S. rates would cause a capital flight out of the South Korean market.

In addition, the snowballing household debt of over 1,400 trillion won will prod the central bank to raise the key rate to curb further rises in household debt.

The BOK said the economy has become more resilient, benefiting from a pickup in global trade. And the economic relationship with China, the world’s second-biggest economy, has begun to recover.

Improving economic indices including stronger exports offered a room for the bank to raise interest rates, observers said.

The bank is reviewing whether the current inflation target of 2 percent is appropriate.

“The bank will make review multiple factors whether the 2 percent inflation target is proper,” a BOK official said.

The bank also said in the report it will pay extra attention to financial market stability as higher interest rates may affect low-income households.

The bank said a rise in exports and an improvement in private consumption on the back of strong global demand would support the growth momentum.

The bank said consumer prices would go up by almost 2 percent next year. The country’s consumer price index increased 1 percent last year and 0.7 percent in 2015.

In the report, the bank cited global protectionist moves in trade and rising policy rates in major economies as potential risk factors the Korean economy faces next year.

Meanwhile, the bank added oil price uncertainty and volatility of foreign exchange rates will have a negative impact on the future inflation path as oil and foreign exchange rates are correlated.