The chief of South Korea's central bank said Sunday the country's inflation is expected to remain close to 5 percent this year, but noted inflationary pressure will likely weaken next year if the financial and foreign exchange markets stabilize, Yonhap News reported.
"In conducting a monetary policy, the central bank focuses on curbing inflation, but it also factors in the economy and the financial market situations," Bank of Korea (BOK) Gov. Lee Seong-tae told a joint press conference after the government, the BOK, and the regulatory Financial Services Commission unveiled a set of packages to calm markets.
"The BOK is managing the policy by taking into account the economic situations for the next six months or one year. Once the direction of a monetary policy is set, the policy cannot help going in that course for some time," Lee said, hinting at an additional rate cut.
His remarks came as the BOK slashed its key interest rate to 5 percent from 5.25 percent on Oct. 9 in a concerted effort to soothe global financial turmoil and stem the drastic slowdown of the local economy. It was the BOK's first cut since November 2004, marking the end of the three-year-old cycle of monetary tightening.
The country's consumer prices slowed to 5.1 percent on-year in September on falling oil prices, but breached the BOK's target range of 2.5-3.5 percent for the 10th straight month. Meanwhile, the growth of Asia's fourth-largest economy is losing ground, led by faltering domestic demand.
After the October rate-setting meeting, market watchers predict the BOK will have no choice but to slash the benchmark rate more in the coming months in order to keep the repercussions of the current global credit crunch from spilling over to the real economy. The BOK's chief left open the possibility of additional rate cuts, saying that it is possible there will be interest rate changes later.
The BOK will also inject adequate Korean won liquidity into the market by buying repurchase agreement deals and government bonds. On Friday, the central bank said it will introduce an open bidding system for won-dollar swaps in an effort to directly supply dollar liquidity to more banks.