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BOK chief affirms independent rate-setting decision

By Yonhap
Published : Oct. 7, 2018 - 13:31

South Korea's central bank chief stressed its right to make monetary policy decisions without political interference a week before the rate-setting meeting.

"I will not freeze the interest rate even though a rate hike is necessary, or vice versa, in an apparent response to outside voices," Bank of Korea Gov. Lee Ju-yeol said in a media meeting held on Friday.



(Yonhap)


His comment follows calls by some high-ranking government officials, including Prime Minister Lee Nak-yeon, for a rate increase as a way to cool down the overheated real estate market.

Insiders expect that the BOK will probably avoid further controversy and not alter the key rate in the upcoming monetary meeting slated for Oct. 18.

But Lee did not refute the need for monetary tightening in the near future in order to curb the massive household debt in the country.

"Household debt is growing at a faster pace than that of income. If this upside tempo continues, it will become a threat to financial stability," the top monetary policymaker said. "We should be ready to proactively deal with the matter before (household debt) reaches a dangerous level."

The governor has emphasized the BOK's role in redressing an imbalance in the financial field brought on by nearly a decade of low interest rates that have inflated real estate prices and household debt.

South Korea's household credit reached a record high of nearly 1,500 trillion won (US$1.33 trillion) as of the end of June.

He also said that the central bank will take the interest rate difference between South Korea and the United States into account when he presides over a rate-setting meeting.

"I am mindful that a widened rate gap may spark a foreign outflow from the local equity market," said Lee. "The U.S. Federal Reserve will likely come up with another rate hike in December. We will keep close tabs on the market."

The Fed, as widely expected, lifted its key lending rate last month to a range of 2 percent to 2.25 percent, broadening the rate spread with South Korea to an 11-year high of 0.75 percentage point.

Currently, more than 30 percent of market capitalization of the country's benchmark KOSPI bourse is owned by foreign investors.

Many here anticipate that a rate-rise decision by the BOK will be made in the last monetary policy meeting of the year, to be held in November, exactly a year after the BOK raised the key rate by a quarter percentage point to 1.5 percent. (Yonhap)


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