By Cynthia Kim
SEOUL (Reuters) – South Korea’s central bank chief said on Wednesday he was in no rush to tighten monetary policy, although the bank foresees the economy rebounding faster this year than earlier expected.
“The trend of growth is likely to be stronger than previously projected,” Governor Lee Ju-yeol said in a out-of-cycle statement released before the next interest rate review on April 15.
“But because real economic activity hasn’t returned to its potential level, and as the economy isn’t fully back on its feet from the shocks of COVID-19, our assessment is that the situation doesn’t warrant adjustments in policy stance.”
Lee’s comments reflect his growing confidence in South Korea’s economic recovery, powered by stellar chip exports and an uptick in consumption.
In February, the Bank of Korea kept the base rate steady at a historic low of 0.5% and raised this year’s inflation outlook to 1.3% from 1.0% previously. The BOK sees 3% growth for South Korea this year.
The bank, like its counterparts worldwide, faces the critical issue of timing the withdrawal of loose monetary policy, as inflationary expectations grow.
Inflation, now at a 13-month high of 1.1%, is expected to gradually rise, although the annual reading will still be below the central bank’s 2% target, according to the BOK.
“It would be an important task to prepare in advance how we should normalize easing measures taken until now in an orderly fashion, if growth and inflation conditions improve,” Lee said.
(Reporting by Cynthia Kim, editing by Larry King)
