South Korea's top central banker said Monday that he will take into account "all factors" in an upcoming interest rate decision for June, as the outbreak of Middle East Respiratory Syndrome is feared to dent recovering domestic demand.
The Bank of Korea is scheduled to hold a monthly rate-setting meeting Thursday after it left the base rate at a record low of 1.75 percent for the second straight month in May.
"I will consider everything in the policy meeting," BOK Gov. Lee Ju-yeol told reporters in response to a question about specific economic indicators he will focus on amid a mix of economic woes, such as the rapid spread of the disease, slumping exports and a weaker-than-expected recovery in domestic demand.
Despite concerns over growing household debt, some economists and policymakers have raised the need for an additional rate hike to spur growth in Asia's fourth-largest economy, which is expected to expand at a slower pace than expected earlier this year.
If the BOK lowers the key rate Thursday, it will send the key rate to an all-time low of 1.5 percent.
Both local and global institutions have recently slashed their growth forecasts for this year, with the Korea Development Institute cutting its forecast to 3 percent from 3.5 percent and the Organization for Economic Cooperation and Development slashing it to 3 percent from 3.8 percent.
Meanwhile, Lee stressed the importance of utilizing both monetary policy and structural reform in shoring up flagging growth and containing potential risks stemming from a looming rate hike by the U.S. Federal Reserve.
"We need to enhance our economic resilience to external shocks, through continued efforts to strengthen our economic fundamentals," he said, "To this end, monetary and fiscal policies should prioritize responding appropriately to this low-growth and low-inflation phenomenon, ensuring that economic vitality does not decline," the BOK chief said in an international conference organized by the central bank.
Lee stressed that structural reform should also be pursued in tandem with such policy efforts "to reverse declining growth potential."
"Importantly, resolving sectoral imbalances and other structural weaknesses will help countries enter better states of the new normal, with higher productivity and efficiency in resource allocation."
Lee's speech is roughly in line with wider efforts by Seoul to drum up support for structural reform in the country's labor and financial market to counter issues, such as rapid aging, which is seen as a major drag on economic growth.
The BOK chief also noted that economic agents' resilience to shocks has weakened amid accommodative monetary policies as the actors piled up debts and investments in risky assets.
This may potentially lead to a contraction in the real economy, he said, noting that "households, firms and financial institutions will bear increased payment burdens and incur investment losses, resulting in financial system unrest."
South Korea's household debt has been piling up as homebuyers increasingly borrowed from lenders amid low interest rates. Household debt reached 1,040.4 trillion won ($925.6 billion) as of the end of March, rising 12.8 trillion won from the end of last year. (Yonhap)