SEOUL (Reuters) – South Korea’s central bank chief said on Thursday that monetary policy will remain accommodative for some time, given the high uncertainties stemming from the coronavirus pandemic, but added that a buildup of financial imbalances is a worry.
Bank of Korea Governor Lee Ju-yeol also said policies should stay expansionary to support an economic recovery, while a targeted approach to help those vulnerable to COVID-19 should be strengthened.
“Monetary policy needs to stay accommodative until a stable recovery in our economy is seen, as there are high uncertainties to the growth path, while inflation is also expected to fall below the target level for a while,” Lee said in a New Year’s message.
Lee said global resurgences in COVID-19 cases, the discovery of virus variants and the possibilities of a reignition in global trade disputes are risks to the export-reliant economy, in addition to demographic and labour challenges.
In future, the bank also should consider employment as an important factor when assessing monetary policy, Lee added.
South Korea’s economy has bounced back as exports recover, with analysts expecting a mild contraction for the year as a whole, but a sharp rise in new COVID-19 infections is clouding the recovery trajectory. The government unveiled a fresh 9.3 trillion won ($8.49 billion) package on Tuesday to support small businesses.
The bank has cut the key policy rate by a total 75 basis points to a record low of 0.50% this year, injected liquidity into the market and extended loans via a special purpose vehicle to cushion the impact of the pandemic on Asia’s fourth-largest economy.
Lee pledged to take measures to stabilise financial markets if volatility increases, while expressing concerns over surging household debt, which could deepen financial imbalances.
(Reporting by Joori Roh; Editing by Kim Coghill)
