The BOK will keep the standard interest rate easing next year… 3% growth path uncertainty`

The BOK “Remains Ease of Base Rate Next Year…3% Growth Path Uncertainty”

The Bank of Korea announced that it will continue its easing monetary policy stance next year. Economic growth is expected to be around 3% next year, but it is diagnosed that uncertainties in the growth path are still high due to the spread of the novel coronavirus infection (Corona 19).

In the ‘2021 Monetary Credit Policy Operation Direction’ announced on the 25th, the BOK said, “It is expected that the domestic economy will recover slowly, but there is high uncertainty over the future growth path such as the extent of the spread of Corona 19 at home and abroad and the timing of vaccine commercialization.” “We will maintain the easing trend of the benchmark interest rate so that we can support and stabilize the inflation rate at the target level.”

Regarding the possibility of adjusting the standard interest rate, he said, “We will make a careful judgment by comprehensively considering the impact of the development of Corona 19 at home and abroad, the operation of monetary and fiscal policies of major countries, and changes in global trade conditions on the domestic macroeconomic flow and financial stability.” The BOK has lowered its benchmark interest rate to a record low of 0.50% through two cuts this year.

He emphasized that he would pay more attention to the possibility of accumulating financial imbalance risks such as the inflow of funds into the asset market and the increase in private credit during the monetary policy operation. The BOK said, “We will consider the impact of the government’s housing and macroprudential policy on the flow of funds to the asset market, and the rise in household and corporate loans,” and said, “Variability such as price variables and capital inflows may increase from time to time, leading to internal and external uncertainties. “We will check closely.”

The domestic economy is expected to show a modest recovery next year. It is observed that exports will continue to improve on the back of the global economic recovery, and facility investment will continue a good trend. However, private consumption is expected to show a slow recovery due to delays in improving household income conditions. Although the sluggish employment trend will ease, the recovery trend will be modest and divisional differentiation will be seen.

The commercialization of the COVID-19 vaccine treatment, the expansion of domestic and overseas economic stimulus measures, and the improvement of the global trade environment are the upside factors.

Consumer prices and core prices are expected to rise by around 1% next year. The BOK predicted that “the rate of inflation will be higher than the previous year due to the improvement of the domestic economy, the base effect of the fall of international oil prices this year, and the rise of rent to cheonsei.” However, it was observed that the target level (2.0%) was below the target level due to low demand pressure.

Regarding financial stability, he warned that there are potential risk factors such as the possibility of accumulating financial imbalances, such as an increase in asset prices due to increased leverage, and a decline in debt repayment capacity of marginalized companies and vulnerable households.

The BOK said, “The credit supply of financial institutions will generally be smooth, but it is highly affected by Corona 19, but there is a possibility that the difficulty of financing in the affected sector will continue.” “Household loans will increase in scale due to the strengthening of the government’s loan regulations, but For the time being, it will improve the level of previous years due to the inflow of funds into the housing market.”