Key Rate Freezing
Bank of Korea froze the key interest rate at 1.5% a year on February 16. Despite the maintenance of the same rate for the eighth consecutive month, a Monetary Policy Committee member pointed out the necessity for a benchmark rate adjustment for the first time in eight months.
“We need to be prudent in adjusting the base rate with external uncertainties on the part of the financial markets of the United States, Japan and Europe lingering on,” said Lee Ju-yeol, head of the central bank.
He added, “Some people are saying that the Bank of Korea should fuel economic expectations even by means of abnormal monetary policy but such policy is feasible only for the U.S., Japan and Europe because they are key currency countries, and monetary policy is no silver bullet as seen in the cases of the central banks of some other countries that have maintained their unusual monetary policy for seven to eight years.”
He also remarked that the current level of 1.5% is sufficient to support an economic recovery in view of various indicators such as liquidity conditions, currency increase and the real interest rate. “When external conditions are unstable, macroeconomic stability should be ensured and measures for dealing with financial and foreign exchange volatilities should come into play,” he added, continuing, “The Bank of Korea is prepared to this although the likelihood of another financial crisis in the near future is rather low as of now.”