The Korea Herald

지나쌤

S. Korea has room for additional monetary easing policy: BOK chief

By KH디지털2

Published : Dec. 22, 2016 - 11:26

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South Korea has room for additional monetary easing policy next year, despite the latest US rate hike, according to the head of the central bank.

Bank of Korea Governor Lee Ju-yeol has said that the US rate increase does not necessarily mean the central bank will immediately raise its interest rates, and on Wednesday, he reiterated the policy bank's earlier position.

"I don't think that our room for monetary policy has been exhausted," Lee said in a meeting with reporters Wednesday.

In the July-September period, South Korea's gross domestic product increased 0.7 percent from the previous quarter, decelerating from a 0.8 percent on-quarter expansion three months earlier, according to the BOK. Year-on-year, the economy grew 2.7 percent in the third quarter.

Early this month, the US Federal Reserve raised its key interest rate by a quarter of a percentage point to a target range of 0.5 percent to 0.75 percent.

Some analysts said the BOK could be put under pressure to raise its rate following the US hike. Currently, South Korea's key rate stands at an all-time low of 1.25 percent.

Lee said the central bank is not weighing the right time for a rate hike for now and will instead pursue a monetary policy after checking various factors amid growing uncertainties.

South Korea's parliament impeached President Park Geun-hye over a corruption scandal involving her confidante earlier this month.

The Constitutional Court is set to determine whether to uphold or overturn the impeachment by early June. If Park is officially ousted, the country has to hold a presidential election within two months.

Lee said political uncertainties have affected consumer sentiment, which in turn placed a burden on the economy.

"Next year, we should place more priority on reviving consumer sentiment that has been shrunk," Lee said, noting that economic growth should be driven by consumption.

Private consumption, a key pillar of South Korea's economy, is in the doldrums. The composite consumer sentiment index came to 95.8 in November, the lowest in nearly eight years, according to BOK data.

Lee also said he agrees with assessments by domestic and foreign institutions that South Korea has room for fiscal policy and the fiscal policy should play a bigger role in the economy, in a thinly veiled call on the government to pursue an aggressive fiscal policy to boost the economy.

The National Assembly approved a 400.5 trillion-won ($341.4 billion) budget bill for next year. Last week, Finance Minister Yoo Il-ho hinted at drawing up a supplementary budget in the first half of next year, if necessary.

On Thursday, the BOK said in a report to the parliament that next year's economic growth rate could fall below 2.8 percent, an estimate the bank made in October.

"The domestic economy is expected to sustain its trend of modest growth going forward, in line with a recovery of the global economy, but there are increased uncertainties surrounding the growth path, given recent changes in domestic and external conditions," the BOK said, citing a US rate hike, growing trade protectionism and domestic political uncertainties.

Lee said Wednesday that the BOK will announce its outlook for next year's economic growth in January after monitoring fourth-quarter growth data.

Next week, the Finance Ministry is expected to revise down its earlier growth estimate of 3 percent for 2017. (Yonhap)