Hours following the US Federal Reserve’s decision to leave its key interest rate unchanged, Bank of Korea Gov. Lee Ju-yeol ruled out the possibility of a policy rate cut in the near future, early Thursday.
“The US’ current wait-and-see mode will help stabilize the global financial market and has given us some room to maneuver regarding our monetary policy,” Lee told reporters at the headquarters of the nation’s central Bank in Seoul.
“However, now is not the right time to cut the interest rate and we will consider all circumstances in deciding how many adjustments we would make,” he added.
|Bank of Korea Gov. Lee Ju-yeol answers questions, surrounded by reporters in central Seoul on Thursday. (Yonhap)|
The US Fed revealed its plan to maintain its benchmark rate in a range of 2.25 percent to 2.5 percent, while knocking down the number of expected rate hikes this year from two in late 2018 to zero. It also revealed a bleaker-than-expected, downgraded outlook for the US economy.
Calling the Fed’s decision “dovish,” Lee noted that uncertainties surrounding the US monetary policy have dissipated, hinting at South Korea’s relief on reducing the risk of an key rate reversal with the US. Reversals in the past have dealt negative blows to the local economy, increasing the risk of capital outflow in times of a sluggish economy.
The BOK has held a steady benchmark rate of 1.75 percent for months since it lifted the rate by 0.25 percentage point in November 2018. The central bank stressed the current level of the interest rate is low and accommodative enough to support economic growth, at its latest rate-setting meeting.
Lee also addressed the pressure the BOK has been receiving from inside and outside the country, with the International Monetary Fund suggesting a rate cut earlier this month as part of policy suggestions to alleviate concerns over foreign capital outflow.
Lee said the BOK and IMF do not hold opposing views, explaining the central bank’s overall goal for this year is to carry the monetary policy in a “credit easing mode,” which is in line with the purpose of the IMF’s suggestion.
But with the economic slowdown dragging down major economies coupled with recent signs shown by central banks in developed countries on returning to credit easing policies, the BOK is likely to face increasing pressure on a rate cut.
“The BOK should consider a pre-emptive cut in interest rate — even if there is no immediate effect — considering the latest ‘parallel’ slowdown observed in both South Korea’s export and domestic economy,” according to a recent report released by economic think tank the Hyundai Research Institute.
Lee said he will not let his guard down, considering a number of remaining downside risks threatening the local economy.
“We continue to face a slew of uncertainties in mapping out our monetary policies,” the top monetary policymaker said. “We should take into account overseas issues, especially the economic cycle of the Chinese economy.”
By Jung Min-kyung (firstname.lastname@example.org)