SEOUL, Sept 12 (Askume) – Economic growth and financial stability are key factors that the monetary policy committee needs to consider when deciding the timing and pace of interest rate cuts, a Bank of Korea board member said.
“We should consider the impact of interest rate cuts on economic growth and financial stability at the same time,” Hwang Gun-il, a member of the Bank of Korea’s seven-member policy committee, said in a quarterly policy report released on Thursday.
Slowing domestic demand has increased the need for preemptive response measures, but household debt has reached a level posing financial risks, Huang said.
Huang said proper integration between fiscal policy and macro-prudential regulation is needed to minimize the trade-off between the two policy objectives.
The Bank of Korea last month kept its policy rate on hold at 3.50%, the highest level since late 2008, but that has revived expectations that policy easing is imminent, with some analysts expecting it to adopt a policy easing at its next meeting on Oct. 11.
Minutes of the policy meeting showed that central bank board members were cautious about cutting interest rates last month due to concerns about rising risks to financial stability despite easing inflation.
“Financial markets expect interest rate cuts at least twice this year, with a slight majority expected,” Vice Governor Park Jong-woo said at a media briefing.
The central bank said in its quarterly report that the outlook for the real estate market remains highly uncertain, and domestic demand is expected to improve only gradually as corporate profits rise and deflation boosts consumer purchasing power.
In terms of financial markets, the Bank of Korea said it is unlikely that government bond yields will fall sharply in the short term, and the yen’s recent strength is unlikely to have a negative impact on the won or capital flows.
