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Worst is over for Korean economy but not in recovery yet: BOK chief

Central bank holds interest rate steady at record low in a year-end move

BOK Gov. Lee Ju-yeol attends a meeting of the monetary policy board at the central bank headquarters in Seoul on Thursday. (Yonhap)
BOK Gov. Lee Ju-yeol attends a meeting of the monetary policy board at the central bank headquarters in Seoul on Thursday. (Yonhap)
South Korea’s central bank chief said Thursday that the worst for the nation’s economy is over but it is still not on the road to recovery, while the bank held the key interest rate steady at a record low.

“The high uncertainties stemming from the circumstances surrounding the possible early commercialization of the vaccine and the spread of COVID-19 around the globe have led us to believe in the need to maintain the current (dovish) stance,” said Lee Ju-yeol, governor of the Bank of Korea, in an online press briefing.

“Though our economy has overcome its low point in the second quarter, it is difficult to say that it has entered the road to recovery as of yet,” he added.

The remarks came after the BOK decided to keep its benchmark interest rate at a record low of 0.5 percent earlier in the day.

The seven members of the monetary policy board, in the year’s last rate-setting meeting, unanimously voted to freeze the base rate at 0.5. In late May, the BOK slashed the rate to a historic low -- following a 50-basis-point emergency rate cut to 0.75 percent in March -- to minimize the economic fallout from the COVID-19 pandemic.

Thursday’s decision was largely expected, as the nation’s financial market has been showing signs of stability and a further rate cut could have worsened the nation’s heated housing market.

The export-reliant economy’s outbound shipments are rebounding as well, as exports rose 11.1 percent on-year to $31.3 billion in the first 20 days of November, Korea Customs Service data showed.

Apparently having received positive signals from the improvement in outbound shipments, the central bank upgraded its 2020 economic outlook for Korea by 0.2 percentage point to a 1.1 percent contraction. Its 2021 economic outlook for the economy also improved by 0.2 percentage point, projecting 3 percent growth.

Lee said the resurgence of COVID-19 both here and overseas is likely to continue for some time and it is too early to make any changes to the benchmark rate.

According to the nation’s health authorities, the daily number of novel coronavirus cases here surpassed 500 for the first time in over eight months on Thursday due to sporadic infection clusters across the country, drawing concerns over the third wave.

“Though we have forecast the pandemic to end starting mid-2021, the time frame for economic recovery will be volatile based on COVID-19, so it is not to time to shift our stance so easily,” the BOK chief said.

Regarding the nation’s fast-growing household debt, Lee expressed concern that the outstanding loans extended to households continue to gain momentum despite some signs of recovery from the worst economic effects of COVID-19.

“The fiscal stability of financial institutions seems relatively stable at the moment, so it’s not an imminent risk, but the government should be alert on the fast-growing momentum,” Lee warned.

By Jung Min-kyung (mkjung@heraldcorp.com)
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