0.5% interest rate maintained for 9 months since May last year
Judging that it is not a level of concern for inflation
Economic Indicators Still Need More Anxiety Alleviation Policies
Fed’s emphasis on easing stance also affects interest rate freeze
The Bank of Korea has frozen its base rate six times in a row since July of last year. Although concerns over inflation are growing amid rising government bond yields and commodity prices, major economic indicators such as employment have not yet recovered sufficiently, so they decided that more easing monetary policy was still needed.
Jerome Powell, chairman of the Federal Reserve System (Fed), firmly emphasized maintaining the existing easing monetary policy, and analysts say that the BOK had no other option than’freeze interest rates’.
This time, the standard interest rate is frozen at 0.5%… Maintained for 9 months since May last year
The Bank of Korea Financial and Monetary Committee held a meeting on the direction of monetary policy on the 25th and decided to keep the standard interest rate at the current level of 0.5% per annum. It is the sixth unanimous decision to freeze after lowering the standard interest rate to 0.5% in May last year.
In March last year, when the economic crisis caused by Corona 19 became visible, the Financial Services Commission drastically lowered the standard interest rate from 1.25% to 0.75%, and cut the interest rate by 0.25 percentage points in May, two months later.
BOK Governor Lee Joo-yeol said at an online press conference held after the Financial Services Commission on the same day, “At this time, there is high uncertainty, it is not in the situation to comment on the increase in the standard interest rate.” I will go out,” he said, and said the background of the freezing decision.
Concerns over inflation are rising to the point where the expected inflation rate recently reached the highest level (2%) since August 2018, but the BOK believes it will take time for demand to recover in earnest. He believes that inflation is not serious enough to raise interest rates.
Governor Lee analyzed that “the economic recovery will eventually depend on how quickly consumption recovers,” and that “the recent phenomenon will only be temporary inflation due to the base effect and abnormal climate.”
Unlike the swollen asset market, the real economy is still low. The number of employed has decreased sharply from the second quarter of last year, but last month, it was found that the unemployment rate reached 5.7%, down 982,000 from the same month last year. Consumer inflation has remained at the mid-zero level for several months, and consumption has also slowed due to the re-proliferation of Corona 19. In order to stimulate the economy, the BOK will have no choice but to maintain zero interest rates for the time being.
However, Governor Lee stressed that “I will pay attention to the possibility of increasing inflation pressure.” If the measures to restrict economic activity are eased, consumption that was suppressed could explode in a short period of time, and there is a possibility that inflationary pressure for a short period of time may increase.
Bank of Korea governor Joo-yeol Lee speaks at a press conference on the direction of monetary policy held at the Bank of Korea in Jung-gu, Seoul on the 25th. yunhap news
Chairman Powell also said, “It will take three years to reach the target for inflation.”
The decisive action of the US Federal Reserve System (Fed) continued day after day helped the BOK decide to freeze interest rates.
Fed Chairman Jerome Powell attended the Senate Banking Committee and House Financial Committee for two days starting on the 23rd (local time), making it clear that there will be no measures to raise interest rates for the time being. Chairman Powell said, “It may take three years or more to reach the inflation target (2%). We will maintain the zero (0) interest rate level while looking at the employment and inflation situation.”
The perception of inflation was similar between Chairman Powell and Governor Lee. Chairman Powell said, “I don’t think (current) inflation is particularly high or sustained,” and did not give much meaning to the recent rise in bond yields, which is making the market unstable.
Governor Lee opposes direct purchase of government bonds again… CBDC is “carefully”
Governor Lee affirmed his clear opposition to the’Bank Direct Purchase of Treasury Bonds’ proposed by some ruling party lawmakers at the meeting. Although there are related provisions in Article 75 of the BOK Act, the government’s fiscal situation is quite different from the 1950s when the law was made, and there are no cases of direct purchase of government bonds since 1995. Major countries such as the United States and the European Union (EU) prohibit direct purchase of government bonds by law.
Governor Lee asserted, “If we directly take over government bonds now, we will be suspicious of the fiscal soundness of our government. It is not desirable because of various reasons such as controversy over monetization of government finances, central bank neutrality, and external credibility.” did.
In addition, regarding the central bank digital currency (CBDC), which is expected to be released by China within a year, President Lee said, “China will approach the full introduction of it carefully.” “Fed chairman said, “It is not important to do it quickly, it is important to do well. Like he said, “The Bank of Korea will also carefully prepare for the institutional foundation.
Kwak Joo-hyun reporter [email protected]
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