SEOUL, July 7 (Korea Bizwire) – South Korea’s central bank is expected to hold its key rates steady this month as it could move to “normalize” interest in early 2018, Moody’s Analytics said Friday.
The Bank of Korea (BOK) is set to hold its rate-review session next Thursday to decide whether to keep or adjust the all-time low rate of 1.25 percent.
“The central bank is in no hurry to raise rates with core inflation only gradually creeping higher amid expectations of improving domestic demand,” Moody’s Analytics said in an economic preview.
The leading provider of economic analysis said the BOK could gradually normalize its monetary policy going into next year as elevated household debt will put undue pressure on the budgets that could have broader consequences with higher debt servicing costs.
South Korea’s household debt stood at 1,359.7 trillion won (US$1.2 trillion) as of end-March, a dramatic increase from 665 trillion won at the end of 2007, according to the BOK.
Last month, BOK Gov. Lee Ju-yeol said the central bank may take a monetary tightening approach if the economy shows signs of a robust recovery.
In May, the BOK unanimously voted to keep the key rate at 1.25 percent, extending its wait-and-see approach for the 11th consecutive month.
Also Friday, Moody’s Analytics said South Korea’s unemployment rate likely rose to 3.8 percent in June after a surprise 0.4 percentage-point drop to 3.6 percent in May.
The fall in May was driven by a decline in the economically active population, rather than improved labor demand, it said.
Moody’s Analytics said domestic demand remains subdued in South Korea but should start improving over the second half of the year, helped by strong global growth alongside generous spending programs from newly elected President Moon Jae-in.