June 25, 2021 12:25
Bank of Korea Governor Lee Ju-yeol on Thursday sent the clearest signal yet that an interest rate hike is imminent.
Lee told reporters that the current base rate of 0.5 percent is the result of "unprecedented" cuts due to the coronavirus pandemic and added, "It's reasonable to normalize the present expansionary fiscal policy at an appropriate time within this year."
"I think we need to think about the timing and speed of the process by considering the economic situation, inflation and level of financial imbalance," he added.
Last month, the BOK's monetary policy committee already hinted at a rate hike within this year and Lee's latest comment make it quasi-official. He defended the decision by saying, "At this point, raising the base rate once or twice would still be considered moderate."
Lee explained that interest rates need to go back to normal because household debt has soared to a record W1.77 quadrillion and a bubble has formed in both real estate and stock prices (US$1=W1,133).
There are also concerns of rising inflation as major economies recover thanks to widespread vaccination. "If the BOK is negligent in its response, there could be major side effects in terms of inflation over the mid-term," Lee warned.
When asked if his position contrasts with the government's plans to put together a second supplementary budget worth W30 trillion to speed up economic recovery, Lee said, "Fiscal and monetary policies can work differently in macroeconomic circumstances."
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