SEOUL, Dec. 31 (Korea Bizwire) - South Korea’s top central banker said Thursday he will continue an easing monetary policy in 2016 to boost growth while guarding against any financial instabilities.
“It is necessary to put the focus on downward risks in economic growth and prices, while closely checking the macroeconomic circumstances,” Bank of Korea Gov. Lee Ju-yeol said in his New Year’s message, noting that the country has seen a moderate recovery amid little inflation pressure.
“Under the new inflation target, the central bank will continue a loosening monetary policy to support a recovery in growth while bearing in mind ways to ensure market stability,” he added.
Earlier this month, the BOK set the country’s annual inflation rate at an average 2 percent over the next three years, sharply lower than the target band of 2.5 percent to 3.5 percent for the 2013-2015 period.
The BOK’s policy direction for the new year comes at a time when the U.S. ended the near-zero rate and raised it by a quarter point to 0.25-0.50 percent earlier this month and hinted at further belt-tightening in 2016.
Lee, however, has said the Fed’s rate hike will not directly lead to a rate hike by the BOK, facing record high household debt and slowing economic growth in China.
Lee expected the local economy to continue such a trend of moderate growth on the back of the turnaround in the global economy and the improvement in domestic demand in 2016. Earlier, the central bank predicted the local economy to grow 3.2 percent in 2016, far rosier than forecasts by private think tanks of below 3 percent and the government’s prediction of 3.1 percent.
The governor, however, warned of possible ripple effects of such external factors as the slow growth in the Chinese economy and wobbling emerging markets.
“As a small-scale, open economy, South Korea should put the priority on the improvement of the constitution of our economy and expand growth potential, and the key for that is to speed up corporate debt restructuring,” the governor said.
“Successful restructuring will help create fresh growth engines, boost both exports and domestic demand, and revive the virtuous cycle of growth and employment, leading to a fast growth in case of better external conditions,” he stressed.
The government has been proactive in weeding out indebted and unprofitable companies. This year alone, the financial authorities picked 54 large-sized firms to either be placed under either a debt workout program led by their creditor banks or to file for court receivership for liquidation.
As a way to stabilize the financial market, he also called for close cooperation among financial entities to resolve mounting household debts.
As of end-September, the country’s household credit reached 1,166.4 trillion won (US$996.5 billion), spiking 10.4 percent from the same period last year, according to the BOK.