By Na Jeong-ju
Staff Reporter
The Bank of Korea (BOK) kept its short-term call rate unchanged on Thursday but expressed concerns about growing liquidity in the market, indicating that the central bank will move to tighten its monetary policy.
BOK Governor Lee Seong-tae said the economy is showing clearer signs of rebound but they are not strong enough yet for the bank to change its monetary stance.
He made the remarks after the bank's monetary policy committee decided to keep its benchmark interest rate steady at 4.5 percent for the ninth straight month since August of last year.
``Over the last few months, bank loans to small and medium-sized firms have grown faster. We are considerably interested in the pace,'' Lee said at a media briefing.
``However, it does not necessarily mean any direct need for a rate hike. It's difficult to tell monetary policy in advance as we have to take into consideration other conditions.''
His comments came amid reports that the economy will expand at a faster pace in the second half on reviving domestic consumption and relatively benign inflation. Soaring prices of oil and other raw materials and rising concerns about household debts have raised uncertainty about the economy, but it is likely to remain on a modest growth track, the BOK said.
Lee remained cautious about the economic outlook.
``We look at the economy from a longer perspective. Some private economic institutes are turning more optimistic, but the BOK's position has not changed much,'' he said. ``Economic indicators in March and April are still too weak for us to have confirmation of an economic recovery in earnest.''
In March, the money supply grew 12.3 percent from a year ago, the fastest growth pace since Feb. 2003 when the rate was 12.9 percent. Banks have been raising the interest rates for housing loans in line with rise in market rates, creating a bigger interest burden on households.
In a recent report on the financial market, the bank forecast the interest burden for borrowers will rise 22 percent in three years, dampening consumer spending and negatively affecting economic recovery.
Asked whether the central bank plans to use other measures than a call rate hike to absorb liquidity, Lee said he has no intention to do so.
``There are various ways to absorb liquidity, but they are just supplementary to call rate policies, and their effects are very limited,'' Lee said.
Analysts say the central bank will take some time to change its monetary policy.
``There have been some signs showing the economy is gathering steam again,'' said Jeon Hyo-chan, chief research fellow of the Samsung Economic Research Institute. ``But there is still heated debate among market participants on whether the economy has hit the bottom and has started to pick up again. We have to wait and see.''
Shin Min-young, an economist at LG Economic Research Institute, said there is little reason for the central bank to raise its key interest rate or lower it under the current circumstances. ``We may have to wait until the third quarter to have a clear view on the direction the economy is taking,'' Shin said.