BOK Hints at Interest Hike This Year
26 June, 2021
Bank of Korea Governor Lee Ju-yeol on Thursday sent the clearest signal yet an interest rate hike is imminent.
Lee told reporters that the existing base rate of 0.5 percent is the result of "unprecedented" cuts as a result of coronavirus pandemic and added, "It's reasonable to normalize the present expansionary fiscal policy at a proper time within this season."
"I think we must take into account the timing and speed of the process by considering the economical situation, inflation and degree of financial imbalance," he added.
Last month, the BOK's monetary policy committee already hinted at a rate hike within this year and Lee's latest comment make it quasi-official. He defended the decision by saying, "At this stage, raising the bottom rate once or twice would still be considered moderate."
Lee explained that interest rates need to get back to normal because household debt has soared to an archive W1.77 quadrillion and a bubble has formed in both property and stock prices (US$1=W1,133).
Additionally, there are concerns of rising inflation as major economies recover because of widespread vaccination. "If the BOK is negligent in its response, there could be major side effects regarding inflation over the mid-term," Lee warned.
When asked if his position contrasts with the government's plans to construct a second supplementary budget worth W30 trillion to speed up financial recovery, Lee said, "Fiscal and monetary policies can work differently in macroeconomic circumstances."
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