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| Bank of Korea (BOK) Gov. Rhee Chang-yong presides over a Monetary Policy Committee meeting at the central bank in Seoul, Jan. 13. Yonhap |
Korea's central bank will pay "additional attention" to implications that previous steep rate increases could have on economic growth and financial stability in carrying out its monetary policy going forward, its chief said Wednesday.
Rhee Chang-yong, governor of the Bank of Korea (BOK), told a meeting with foreign correspondents in Seoul that the central bank will execute its monetary policy "in a refined manner," while pushing to enhance "transparency" in its communication with markets in the process.
"While ensuring price stability was the Bank of Korea's main priority for last year due to high inflation exceeding 5 percent throughout the year, for this year, the BOK, while maintaining its focus on price stability, will have to pay additional attention to its possible trade-offs against steady growth and financial stability," Rhee said.
"The BOK will continue to conduct its monetary policy in a refined manner while comprehensively taking into account these policy conditions and strive to enhance transparency in its communication with markets."
Last week, the BOK hiked the benchmark interest rate from 3.25 percent to 3.5 percent, the highest level since late 2008 as it grapples with stubbornly high inflation. The rate increase marked the seventh straight one since April last year, which also represented the longest span of monetary tightening.
Expectations are growing that the BOK could halt rate increases in the coming months, predicting the terminal rate of the tightening cycle that started 1 1/2 years earlier could stop at either 3.5 percent or 3.75 percent.
More than a year of aggressive rate increases have spawned worries that they could excessively cool economic growth by denting consumption and corporate investment, while increasing the debt burden on many households that had taken out loans to tide over challenges from the coronavirus pandemic and buy homes amid the red-hot real estate market.
Rhee said the household debt will not likely cause instability in the short term, given that banks are "well capitalized" and a large part of the debt has been well collateralized with real estate under strict lending regulations.
He still raised worries over high proportions of shorter-term debt and outstanding loans with floating rates that could rise in tandem with monetary tightening.
"The structure of our household debt makes monetary policy decisions more complicated," he said.
"As such, consumer spending and economic activity can be more sensitive to monetary tightening and to any decline in housing prices. The cumulated impact of interest rate increases could lead to an aggravating trade-off between inflation and growth, making monetary policy much more difficult." (Yonhap)
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