By Kim Jae-kyoung
The nation’s top central banker reiterated Tuesday that the Bank of Korea (BOK) will tip the balance of its monetary policy in favor of price stability over economic growth, hinting at a further rate hike in the coming months.
“Despite the bank’s recent rate hike, the current monetary policy stance is still viewed as highly accommodative, given the situation of the real economy such as the potential growth and inflation rate,” BOK Governor Kim Choong-soo said during his speech at a meeting hosted by the Seoul Financial Forum.
“Although the policy rate has been adjusted upward, the scale of the increase in the interest rate was not very large. It is likely to have only a limited impact on the financial and housing markets and on the household and corporate sectors,” he said.
His remarks came a few days after the central bank left its key rate untouched at 2.25 percent last Thursday. The central bank hiked its policy rate by 25 basis points to 2.25 percent in July after keeping it fixed for 16 months.
Kim pointed out that the prolonged low interest rate has delayed structural reform in the corporate sector, becoming a major stumbling block that prevents the strengthening of economic fundamentals.
“I think that monetary policy has some role to play in strengthening the economic fabric. As the central bank, we have a responsibility not to hit weak sectors such as households and small firms too hard by raising the interest rate,” he said.
“On the other hand, we must also be on our guard against households and small firms delaying strengthening themselves due to excessive dependence on the low rate environment,” he added.
He stressed that structural reform, rather than being viewed as just a negative concept involving the layoff of workers and the elimination of marginal firms should instead be deemed a development concept.
“By shifting resources to sectors with high productivity it serves to heighten competitiveness among firms and spur renewed expansion of employment and economic growth,” he said.
Kim said that an expected slowdown in the Korean economy in the second half should be interpreted as a natural reaction to the sharp progress in the first six months, not as a faltering of economic momentum.
Regarding the outlook for the won against the U.S. dollar, he said, “The responsibility of the central bank is to maintain the stability in the market. We don’t have any target (for the won).”