All eyes on BOK's rate hike this week

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Fri, February 3, 2023 | 06:03

Economy

All eyes on BOK's rate hike this week

Posted : 2018-11-25 15:48

Updated : 2018-11-25 17:20

Bank of Korea Governor Lee Ju-yeol / Courtesy of Bank of Korea

By Park Hyong-ki

The Bank of Korea (BOK) is likely to raise its key rate at the last monetary policy meeting of 2018 on Nov. 30, ahead of another increase in the U.S. interest rate in December, analysts said.

BOK Governor Lee Ju-yeol has indicated the central bank's future short-term policy will have to focus on "maintaining financial stability" above all else, pointing to growing imbalances stemming from soaring household debt and apartment prices.

He mentioned this to lawmakers during a National Assembly hearing on Oct. 29, citing concerns over the debt increasing faster than household income growth. On Sept. 26, the U.S. Fed signaled another hike for Dec. 19, after raising its borrowing cost for the third time to a range of 2 percent to 2.25 percent.

Although its policy direction is not driven mainly by real estate prices connected to the debt, Lee added they are posing a risk to the financial market. The BOK also reiterated his point in its monetary policy analysis report on Nov. 8.

Analysts say the BOK's 0.25 percentage point increase to 1.75 percent on Nov. 30 will closely mirror the actions taken by both U.S. and Korean central banks a year ago.

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On Nov. 30, 2017, the BOK raised it to 1.5 percent, ahead of the Fed's unanimous hike to the same level on Dec. 14. Then, the BOK said the main reason was to maintain stability, which usually refers to monetary tightening.

"The rate hike is expected as the central bank seeks financial stability amid the debt level and the rate gap between the U.S. and Korea," said Kim Doo-un, an economist at KB Securities.

The OECD also said, "Monetary policy needs to consider potential risks to financial stability, including capital flows and household debt."

In October, two of the seven-member BOK committee voted for a rate hike. But it froze the rate then as it revised down its growth projection to 2.7 percent in 2018 and 2019 amid sluggish consumption and rising unemployment.

Given the economy will continue to be mired in weaker, jobless growth further beset by snowballing household debt, which hit 1,500 trillion won, analysts say the central bank's policy is not going to be normalized anytime soon.

They said it may be the last time for the BOK to raise its rate for stability as the global economy is about to slow down in 2019 on heightening trade tension between the U.S. and China. And this will make it harder for the central bank to further tightening its policy.

"After a hike on Nov. 30, the BOK is expected to keep the rate unchanged in 2019 because of weak jobs and sluggish corporate investment," said Shin Eol, an analyst at Shinhan Investment.

hyongki@koreatimes.co.kr