South Korea’s central bank chief said on Thursday that monetary policy would stay accommodative for some time. That has given the high uncertainties stemming from the coronavirus pandemic. He added that a buildup of financial imbalances is a concern.
Lee Ju-yeol, Bank of Korea Governor, also said policies should stay expansionary to support an economic recovery. That is while a targeted approach to help those vulnerable to COVID-19 gain more strength.
Lee said in a New Year’s message that the monetary policy needs to stay accommodative. That is until their economy recovers stably. There are high uncertainties about the growth path. He expects inflation to fall below the target level for a while, he added.
Lee also said global resurgences in COVID-19 cases are risks to the export-reliant economy. Moreover, the discovery of virus variants and the possibilities of a reignition in global trade disputes. These are in addition to demographic and labor challenges.
The bank should also consider employment as an important factor when assessing monetary policy, Lee said.
South Korea’s Economy Recoils
South Korea’s economy has rebounded as exports recover. Analysts are expecting a mild contraction for the year as a whole. A sharp rise in new COVID-19 infections, however, is clouding the recovery trajectory.
The government unveiled a new 9.3 trillion won ($8.49 billion) package on Tuesday to support small businesses.
This year, the bank has cut the key policy rate by a total of 75 basis points. That was to a record low of 0.50%.
It injected liquidity into the market and extended loans via a special purpose vehicle. This was to cushion the impact of the pandemic on Asia’s fourth-largest economy.
If volatility increases, Lee pledged to take measures to stabilize financial markets. He expressed concerns over surging household debt, which could deepen financial imbalances.