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Central bank chief refutes rumors of government intervention in rate hike

Bank of Korea Gov. Lee Ju-yeol attends a parliamentary audit held at the National Assembly at the National Assembly in Seoul on Friday. (Yonhap)
Bank of Korea Gov. Lee Ju-yeol attends a parliamentary audit held at the National Assembly at the National Assembly in Seoul on Friday. (Yonhap)
South Korea’s monetary policy chief on Friday denied that the central bank’s latest rate hike was aimed at boosting the government’s real estate measures, which have failed to cool down the nation’s heated property market.

In a parliamentary audit held Friday, Lee refuted rumors that the Bank of Korea’s first pandemic-era rate hike carried out in August, was a move pressured by the government.

The latest rate hike by 25 basis points to 0.75 percent ended more than a year of record-low interest rates, after the BOK slashed a combined 75 basis points between March and May 2020. The record-low base rate aimed to provide cushion for the economy following the outbreak of COVID-19 early last year.

The rumors apparently stemmed from the timing of the rate hike -- a month after a rare meeting between Lee and Deputy Prime Minister and Finance Minister Hong Nam-ki on July 5. During the meeting, the two agreed for the need to adjust the level of monetary easing in tandem with the pace of the economic recovery.

The meeting itself -- which came for the first time in more than two years -- was held after concerns that the government and the BOK’s policies were not in sync. The BOK had been hinting at least one rate hike by the end of the year, in weeks prior to the meeting, while the government had maintained its expansionary fiscal policy, proposing another extra budget of 33 trillion won ($29 billion), the second extra budget for the year. The National Assembly approved the budget in late July.

“We consider the real estate market when deciding on the benchmark interest rate, but we do not make the decision based solely on the state of the housing market nor on the request of the government,” Lee explained Friday.

On the possibility of another rate hike in the rate-setting meeting scheduled next month, Lee said that “it’s a sufficiently plausible option.” The remark echoed Lee’s hints of a November rate hike in the latest rate-setting meeting held Tuesday, when the monetary policy board decided to keep the base rate anchored at 0.75 percent. But Lee has said that the decision was not unanimous and there were voices within the board to carry out a rate hike this month.

Lee also pledged to wrap up its ongoing pilot testing of its central bank digital currency by the end of 2022, saying that by completing the research, it plans to gear up for actual adoption of the digital money.

On the nation’s economy, Lee said that while there are concerns of stagflation -- a period of high inflation combined with stagnant growth and high unemployment -- it has “yet to enter that stage.”

On Tuesday, the central bank kept its 2021 growth forecast for Asia’s fourth-largest economy at 4 percent, citing the solid vaccination rate here, despite the ongoing fourth wave of the virus.

The BOK maintained its annual 2.1 percent forecast made in August for inflation, which it had raised from its earlier projection of 1.8 percent. But Lee warned that the forecast is likely to be raised due to the surging global oil prices. 

The average sales price of apartments in Seoul has nearly doubled under the Moon Jae-in government, data from civic group the Citizens' Coalition for Economic Justice recently showed. The average price of a 99-square-meter apartment in Seoul rose to 1.19 billion won ($1.04 million) from 620 million won from May 2017 to May 2021. The data involved the prices of 115,000 units in 75 apartment complexes in the capital. 

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