|Bank of Korea Governor Lee Ju-yeol speaks during a press conference at its headquarters in Seoul, Thursday. Courtesy of Bank of Korea|
Central bank keeps 2021 growth outlook at 3.0 percent
By Lee Min-hyung
The Bank of Korea (BOK) will not hike its benchmark rate any time soon as the economy still remains vulnerable to the effects of the COVID-19 pandemic, despite some escalating concern about inflation, BOK Governor Lee Ju-yeol said Thursday.
"Now is not the time for the central bank to discuss a possible hike in the key interest rate," Lee told reporters during an online press conference.
He reiterated that the BOK will continue to place top priority on stabilizing the economy from uncertainties caused by the pandemic.
"Concern is rising over a series of other financial risk factors ― such as rising household debt and overheating capital markets ― but we will keep our monetary easing in consideration of the coronavirus' unpredictability."
The central bank also revised up its inflation outlook to 1.3 percent in 2021 from an earlier forecast of 1 percent.
"The 1-percent range inflation rate is not worrisome for now," Lee said. "We need to wait and see if inflationary pressure persists, as uncertainties remain surrounding the spread of COVID-19."
The chief of the central bank also said it would "take some time" until the economy enters into a stable demand-side recovery.
The remarks came after the central bank's seven-member monetary policy board decided to keep the benchmark rate frozen at 0.5 percent, Thursday.
"The central bank will maintain a monetary easing policy as uncertainties over the economy's growth remain high," Lee said.
The central bank also projected GDP growth for this year at around 3 percent, and 2.5 percent for 2022.
"The growth projection reflects a slow recovery in private consumption here, even if exports in the area of IT products, such as semiconductors, have recently shown signs of bouncing back."
The governor said the bank's outlook for the economy depends on how fast the pandemic subsides amid the level of progress in the nationwide vaccination campaign.
Local economists argue that the economy could achieve a sharp rebound if concerns over the virus are resolved in the latter half of 2021.
"The GDP growth this year could reach as high as the 5-percent range if vaccinations are delivered on time," Sejong University economist Kim Dae-jong said.
The BOK's GDP outlook appears to be conservative, as it has taken into account a possible worst-case scenario regarding the virus factor, according to Kim.
"Exports account for more than 65 percent of Korea's GDP," he said. "Even if exports have shown signs of stable growth for the past few months, virus-related uncertainties keep holding back the economy's full-fledged recovery for the time being."
He said the central bank will have no choice but to keep the key rate frozen at least through the first half of the year.
"The U.S. Fed recently vowed to maintain its short-term key rate near zero, and the BOK is highly likely to follow in its footsteps unless fears over the virus rapidly come to a complete end," Kim said.