Bank of Korea’s Lee Says Recovery, Prices Set Normalization Pace By Bloomberg

(Bloomberg) — The Bank of Korea will continue to adjust policy in line with the economy’s recovery and keep an eye on the risk that high inflation lasts longer, Governor Lee Ju-yeol said in a speech marking the new year. 

Following two interest-rate hikes in 2021, the South Korean central bank will watch growth and inflation trends, financial imbalances and changes in global monetary policy as it decides when to reduce accommodation again, Lee said Friday. 

“The economy will continue steady growth on the back of exports and investment, but uncertainties surrounding the economy remain high,” Lee said, according to a statement from the BOK. “With the emergence of the new variant, it’s difficult to gauge when the pandemic will end, and there are concerns that high inflation may last longer than expected due to supply disruptions and climate change polices.” 

Lee’s comments largely echoed the bank’s previous stance that rate hikes will continue into the new year, with the caveat that the pace and timing of any change will depend on how the pandemic affects the economy.  

Data released earlier Friday showed Korea’s inflation hovered near a decade high in December, underscoring persistent price pressures facing the economy. 

South Korea Inflation Exceeds 3% for Third Month in December 

In Friday’s statement, Lee also expressed concern over excess debt buildup, an issue that has prompted the BOK to start reining in stimulus in 2021 earlier than most Asian peers.  

“Such weak links in the economy are exposed to risks when external situations deteriorates,” Lee said. “When uncertainties are high, like now, we should find our vulnerabilities and actively work to resolve them.”

Lee added that financial markets and capital flows could become more volatile as global central banks normalize policy, and called for timely action to stabilize markets. 

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