[이코노믹리뷰=강민경 기자] The Bank of Korea Governor Lee Ju-yeol chose to freeze the last time the base rate was decided during his tenure. Although inflationary pressure is strong, the base rate has already been raised twice in a row, and it is interpreted as a judgment considering the unstable economic recovery due to the COVID-19 situation and the Ukraine crisis.
However, on the same day, Governor Lee said, “It cannot be viewed as austerity for raising the base rate once more to 1.5%. It would be desirable to go out.”
The Monetary Policy Committee, which accelerated rate hikes… went out to breathe
The Monetary Policy Committee of the Bank of Korea held a regular meeting on the morning of the 24th and decided to keep the base rate at the current level of 1.25% per annum. This rate decision was unanimous.
With the freeze on that day, the first ‘three consecutive’ hikes in history were avoided. The BOK, which had already raised the base rate twice in November and in January of last year, is interpreted as making this decision to check the effect of the base rate hike last month.
At a press conference on the same day, Governor Lee Ju-yeol of the BOK said, “As the Monetary Policy Committee has adjusted interest rates preemptively three times over the past three, it is necessary at this point to look more closely at the impact of changes in external conditions, such as the direction of monetary policy in major countries and geopolitical risks, on the domestic economy. We took into account the fact that there is a
However, as concerns about inflation have grown, the signal for an interest rate hike is expected to continue. Through his remarks and Q&A with reporters, Governor Lee hinted at the possibility of two or three additional rate hikes within the year.
Governor Lee said, “In view of the fact that inflation is expected to continue for a considerable period of time and there is still a need to reduce the risk of financial imbalance, it is judged that it is desirable to continue adjusting the degree of easing. %, I think the market expectation is based on a reasonable economic outlook.”
“Ukraine crisis will have a big impact on domestic prices… be careful”
The Monetary Policy Committee raised the consumer price inflation rate to 3.1% through the revised economic forecast released on the same day. This is an increase of 1.1 percentage points (p) from the previous forecast (2.0%) announced in November last year. It is the first time in 10 years since 2012 that the BOK raised its annual consumer price inflation forecast to 3%.
The 3% inflation forecast was influenced by a rise in raw material prices due to concerns over the ‘Russian-Ukraine war’ and a global supply bottleneck.
Governor Lee said, “The worst-case scenario in which Russia and Ukraine are engaged in an all-out war is not included in the inflation forecast. “In this case, it could lead to domestic price rise, and if Western countries increase the intensity of economic sanctions, the global economy will contract and domestic exports will inevitably be affected,” he said.
A line was drawn on the correlation between the inflation forecast and the base rate hike. Governor Lee said, “In principle, the need for a monetary policy response becomes greater when the inflation rate rises than before. Therefore, it is not appropriate to mechanically predict that the number of base rate hikes should increase.”
