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| Bank of Korea Governor Lee Ju-yeol speaks during the National Assembly's annual audit on Yeouido in Seoul, Oct. 16. Yonhap |
By Lee Min-hyung
The Bank of Korea (BOK) will start discussions next year as to whether it should raise the benchmark rate, amid growing hopes that the Fed might consider a rate hike following the inauguration of U.S. president-elect Joe Biden.
Biden is in favor of a strong pump-priming stimulus to help the virus-hit U.S. economy achieve a rapid rebound. This has sparked expectations that the Fed could increase the current near-zero rate earlier than its pledge to maintain the status quo until 2023.
As Korea's central bank follows the Fed in determining the key rate, the external political factor is also leading expectations that the BOK's monetary policy board will soon start in-depth talks over increasing the rate, even if a hike is unlikely at least until the end of next year.
The BOK cut the rate to the record low of 0.5 percent this year amid economic downfall induced by the global spread of the coronavirus. With the COVID-19 shock showing little sign of coming to an end any time soon, chances are getting slimmer that the monetary authority will take steps to drive up the rate to earlier levels in the near future.
Experts argue the BOK is unlikely to increase the rate at least until the end of next year amid weakening signals for global economic recovery. They said the BOK's monetary board would raise the rate as early as mid-2022 despite expectations that the COVID-19 vaccine will be completely developed and commercialized next year.
"The BOK's possible decision to increase the rate will not come in the imminent future, as uncertainties over the global economy remain in place," said Korea University economist Kim Jin-ill who worked at the Fed before joining the university.
"The BOK will likely do so about one quarter before the Fed's possible rate hike," he said. "But for now, the Fed does not appear to be drastically bringing forward the timeline of the decision despite the Biden factor."
The Korea Capital Market Institute expected the BOK to raise the rate sometime around the second or third quarter of 2022.
The central bank plans to hold this year's final monetary policy board meeting on Thursday, and it will likely keep the status quo in consideration of lingering economic uncertainties surrounding the second or third wave of the virus spread.
BOK Governor Lee Ju-yeol also reaffirmed the BOK's willingness to continue its current monetary easing stance until the virus shock is on track to subside.
"We are going to continue the monetary easing policy stance until the local economy shows signs of recovery in line with the weakening COVID-19 impact," Lee said during a press conference after holding the latest monetary board meeting last month.
