BOK governor suggests a bump-up in base rate

Bank of Korea Governor Lee Ju-yeol has suggested the possibility of bumping up the base rate within this year. Lee’s comment reflects the central bank’s intention to catch the ideal opportunity to increase the base rate to prevent the massive liquidity generated from pandemic relief measures from triggering inflation or a surge in household debts.

On Thursday, Lee said the bump-up of the standard rate will be contingent upon the economic status in a press conference held after the Monetary Policy Board froze the key interest rate at 0.5%. The base rate has been frozen at 0.5% for a year since it was curtailed from 0.75% in May last year. The Bank of Korea put the growth rate of the Korean economy this year at 4.0%, up 1.0 point from its projection in February.

“We took unprecedentedly lax monetary measures to be prepared for the possibility of pandemic-induced economic doldrums, and it is a natural step to make adjustments as the economy recovers,” said the central bank governor. “We won’t rush into the phase of normalization of the base rate and will make sure to refrain from making any mistake. “

“Hasty normalization is not desirable, but a delay might stun the recovery,” Lee added, saying an upward adjustment of the interest rate might add the burden of paying interest for households, but a continued increase of household debt might be even more problematic, and fixing it could prove to be much more costly in the end. On Thursday, KOSPI closed at 3,165.51, down 2.92 points (0.09%) from the previous day.


Choong-Hyun Song balgun@donga.com