South Korea’s central bank will resume its efforts to raise the interest rate if a set of external economic uncertainties are reduced, its chief has said.
Bank of Korea policymakers face a dilemma in how to deal with lingering inflation concerns and heightened economic uncertainty sparked by dimmer global economic outlooks and the eurozone debt crisis.
“As I’ve emphasized many times, the BOK will continue to make efforts to normalize the policy stance if external economic uncertainties are reduced,” BOK Gov. Kim Choong-soo said in a meeting with reporters on Friday. His remarks were embargoed for noon on Sunday.
But Kim said he cannot elaborate on when and under what circumstances the BOK could hike the key rate, indicating that BOK policymakers are facing difficulties in normalizing the policy stance.
His remarks came as analysts are laying out mixed outlooks for the direction of the monetary policy. After the BOK froze the key interest rate at 3.25 percent for the fourth straight month in October, more experts argue that the BOK is not able to hike the borrowing costs at least for the remainder of the year. But some analysts even penciled in a chance of a rate cut early next year.
“BOK policymakers are closely watching changing external economic conditions ... In that sense, we are prudent in managing the rate policy, but that also does not mean that we won’t act.”
South Korea’s on-year inflation growth moderated to 4.3 percent in September from 5.3 percent in August. But consumer prices topped the upper ceiling of the BOK’s 2-4 percent inflation target band for the ninth consecutive month, fanning concerns that the BOK will fail to meet its whole-year inflation target of 4 percent.
Meanwhile, the governor said that the BOK is not considering overhauling the current 3-year inflation targeting scheme.
The BOK aims to keep the median consumer inflation target at 3 percent with a margin of plus or minus 1 percentage point for 2010-2012.
