Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
Bank of Korea governor hints at another rate hike in November
By Lee Min-hyung
By Lee Min-hyung
The Bank of Korea (BOK) reinforced its signals of a key rate hike in November, Tuesday, following a forecast of a solid economic recovery.
“The central bank can consider raising the rate once more next month if the economy continues to bounce back in line with our expectations,” BOK Governor Lee Ju-yeol said during an online press conference after its monetary policy board kept the benchmark rate frozen at 0.75 percent.
Even though the board decided to keep the rate unchanged during the rate-setting meeting, the BOK will keep a close watch on any possible changes in internal and external financial circumstances over the next few weeks before possibly raising the rate next time, the head of the central bank said.
Two hawkish members of the seven-member monetary board ― Lim Ji-won and Suh Young-kyung ― voted for a rate rise of 25 basis points. But the majority decided to remain dovish this time on fears of widening external financial uncertainties that could have a potential domino effect on the nation's stock markets.
The concern reflected the recent collapse on the benchmark KOSPI, which fell below the symbolic 3,000-point last week for the first time six months on a foreign investors' selling spree of Korean shares.
The weakening investor sentiment is attributable to multiple external uncertainties, including the rising default risk of Chinese real estate developer Evergrande, the continued global supply chains shock and reviving fears of U.S.-China trade disputes.
The board noted in a statement that it would adjust the degree of monetary easing down the road, as Korea's consumer inflation is expected to rise above the 2-percent level.
The BOK also maintained its rosy growth outlook for the local economy, expecting Korea's GDP growth this year to top 4 percent on robust exports and a gradual recovery in private consumption due to the rising vaccination rate here.
Bank of Korea Governor Lee Ju-yeol speaks during a press conference in Seoul, Tuesday. Courtesy of Bank of Korea
The outlook raises the possibility of an additional rate hike during this year's last rate-setting meeting slated for Nov. 25.
The BOK governor also pledged to pay closer attention to the foreign exchange market amid a steep rise in the won-dollar exchange rate which touched a new high for the year of 1,200 won per dollar, Tuesday.
“The exchange rate has increased somewhat sharply due to visible signs of the U.S. Fed's tapering, Evergrande-related risks and energy price rises,” he said. “If necessary, we will take steps to stabilize the market by watching the external uncertainties closely.”
Lee remained neutral in his viewpoint on the overheated housing market. Last week, Finance Hong Nam-ki said housing prices here were showing signs of flattening, citing the BOK's relevant consumer price index.
“Now is not the right time to say for sure that the market has entered a path for long-term stability,” he said. “We need to further wait and see, as the housing market is affected by a variety of factors.”
Economists expect the central bank to push for a further rate hike sometime in the first half of 2022.
“The rate hike in November is highly feasible in line with the timeline of the Fed's tapering, and my view is that the BOK will push for an additional rise in the benchmark rate as early as the first quarter of next year,” Sejong University economist Kim Dae-jong said. “The central bank will also likely raise the key rate to 1.5 percent next year in tandem with the Fed's signal for monetary tightening.”