BOK under pressure for further rate hike
Bank of Korea Governor Lee Ju-yeol speaks during an online press conference at the central bank's headquarters in Seoul in this photo taken in January. Korea Times file
By Yi Whan-woo
The Bank of Korea (BOK) is under pressing need to increase the key interest rate further at its next monetary policy meeting scheduled for Feb. 24, with inflation showing no signs of letting up.
There are also reasons to maintain the rate at 1.25 percent as set in January, the third straight hike following two last year in August and November, with the presidential election coming on March 9 and BOK Governor Lee Ju-yeol's term expiring at the end of the same month.
Consumer prices rose more than 3 percent for the fourth consecutive month in January, advancing 3.6 percent year-on-year, after gaining 3.2 percent in October, 3.8 percent in November and 3.7 percent in December, according to Statistics Korea, Friday.
This is the first time in almost a decade the quarterly figure remained above 3 percent.
The January gain is attributed mainly to high prices of oil products and dining out amid soaring energy prices and a global supply chain crisis.
The inflation exceeds the BOK's mid-term target of 2 percent for the 10th straight month.
Against this backdrop, First Vice Finance Minister Lee Eog-weon warned of further upward pressure on consumer prices, noting oil prices have spiked over increased geopolitical tensions between Russia and Ukraine.
He said this spike “will be reflected in gasoline prices down the road.”
Taking this into account, the BOK said the country should be vigilant on the possibility of heightening financial market volatility amid persistent worries over inflation in major economies and other risk factors.
Still, half of the six members at the BOK's rate-setting board were found to be positive about an additional rate hike, according to the minutes from the January policy meeting released on Feb. 3.
“The current interest rate remains at a significantly accommodative level and further rate hikes would not hamstring recovery trends of the economy and employment,” a board member said.
Another member said that there is no reason to delay bringing the unprecedentedly low interest rates back to normal, saying the benefits of tightening monetary policy would outweigh any possible negative impacts on economic recovery.
But one of the three who had dissenting views on the rate increase argued there were already two hikes in August and November and time is needed to observe the ripple effect.
In their reports released Friday, JP Morgan and Goldman Sachs both speculated the BOK will additionally raise the interest rate two times this year.
However, two analysts showed different views.
“We need a wait-and-see moment, and February is possibly the right time to do so,” said Joo Won, a senior research fellow at Hyundai Research Institute.
He also pointed out the U.S. Federal Reserve will decide its next interest rate in March, not February.
“Considering the influence of the Fed's decision on the Korean financial market, it makes it more appropriate for the BOK to maintain the benchmark rate and monitor the situation,” he said.
Chang Min, a senior research fellow Korea Institute of Finance, said it would be better to leave the decision to the next BOK chief, who will be appointed by the new president after the March 9 presidential election.