BOK governor intends not to rule out the big step

“We cannot entirely exclude the possibility of a big step (increasing the base rate by 0.5 percentage points or more) in the future,” said Lee Chang-yong, the governor of the Bank of Korea (BOK), on Monday.

The BOK governor told a group of reporters that while there is no need to consider taking the big steps given the circumstances up to April, the decision would have to be made comprehensively with the trajectory of prices taken into account,” after having his first one-on-one meeting with Choo Gyung-ho, the Deputy Prime Minister and the Minister of Economy and Finance, on Monday.

Pundits say the governor has hinted at the possibility of taking a big step against the backdrop of the inflation rate in the country surging to a 14-year-high at 5% and the base rates of the central bank and the Fed potentially being reversed in a near future.

“We will have to take a closer look at the future trajectories of the inflation and the growth rate of the local economy to make a decision,” the governor said.

The market instantly lurched as the head of the central bank mentioned the possibility of a big step for the first time. The 3-year Treasury Rate jumped by 0.17 percentage points during the day to 3.08% per annum. “It was only a theoretical stance that all possibilities must be taken into account when deciding on monetary policies,” said a high-ranking official from the central bank to quell the nerves.


Min-Woo Park minwoo@donga.com