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| The Bank of Korea Governor Lee Ju-yeol responds to a question in a scheduled press conference held at the bank's headquarters, downtown Seoul, Tuesday. Yonhap |
By Kim Yoo-chul
The Bank of Korea (BOK) Governor Lee Ju-yeol expressed concerns about possible adverse effects of the recent U.S. rate hike as chances for more rate increases will raise uncertainty about market volatility.
"Investors worry the Federal Reserve (Fed) may shift rapidly in its rate policy. We've seen high volatility in emerging economies' currency and stock markets. The bank will keep an eye on them," the governor Lee told reporters at a luncheon meeting at its headquarters, downtown Seoul, Tuesday.
He said the trade disputes between the United States and China may have a "sizeable impact" on the economy. However, the governor said solid investment and productivity will sustain the nation's economic momentum.
"Let's say trade friction between the world's two super powers is a wildcard to watch," he said. Economists say that negotiation and de-escalation will likely be the endgame, even though a series of U.S.-China trade talks didn't end with a breakthrough deal.
Given improving economic indices, the bank maintained its projected 3 percent growth rate for the year.
Lee said it's highly unlikely that Asia's fourth-largest economy will be rattled by massive capital outflow from foreign investors invested in equity assets. The Fed has the intestinal fortitude to wait until it creeps into credit conditions and causes financial stress.
"Given an ample trade surplus and solid soundness, we don't think the local financial market will see a 'sudden stop'," said the governor, adding the rate reversal between the United States and Korea is "one but evident factor" that may cause a selling spree.
The Fed raised the target range by 25 basis points with slightly hawkish changes to its projections. But the core message remains little changed _ a gradual pace of rate hikes still seems appropriate.
Regarding the bank's next monetary policy plan, the governor said, "Assuming the growth rate is sustained and inflation nears the bank's target, then an additional rate policy will be needed. We will monitor domestic economic situations, and then decide."
Economists project consumer recovery will be gradual. But the momentum is also likely to be gradual as a narrow recovery in exports means there is still no broad-based recovery of employment.
On the impact on households after rate hikes, the governor said, "The bank is managing its monetary policy after reviewing the stability of the financial market," While the pace of increase in the household-debt-to-GDP ratio has slowed, the household balance sheet has still not been delivered.
The bank said employment for the first five months of this year failed to meet its earlier target. Korea added 72,000 new jobs in May from a year ago, marking the weakest increase in more than eight years.
