[KDI 전망] "Difficult to compete" rising benchmark rates in Korea

Entry 2018.11.06 12:00

"Rising rates, the decision of the BOK to the MPC," but "to maintain the monetary easing"

The Bank of Korea (BOK) is expected to raise its key rate this month, while the KDI (Korean Institute for Development), a national research institute, opposes the decision of the Bank of Korea.

"It is desirable to maintain the easing of monetary policy for the moment, given slower growth in domestic demand and weak demand-side inflationary pressures," KDI said in its report. the second half of the year.

Kim Hyun-wook, head of the KDI Economic Forecasting Department, said: "It is up to the BOK to raise the benchmark interest rate by 0.25 percentage point, and the KDI's opinion means that it is desirable that the BOK maintain its policy We should be cautious when we transform monetary policy into a long accumulation in the face of uncertainty and external uncertainty. "The BOK stated that the BOK should freeze the reference interest rate at the current level (1.50% per annum) for the moment.

Indeed, the government-funded research institute has raised objections to the BOK's policy rate hike, as the economic situation is sluggish and inflationary pressures are low. According to KDI, "on the recent supply side, inflationary pressures have intensified and consumer price inflation has approached the inflation target of 2%, but the rate of inflation excluding energy and food prices is only 1% "He said.

KDI feared that this weighs heavily on the economy as consumption decreases due to rising oil prices. If oil prices rise and private consumption shows signs of weakening, domestic demand is likely to continue to weaken by raising the benchmark interest rate. KDI said: "We should also consider the possibility that changes in external conditions, such as the trade dispute between the United States and China, will slow the growth of our economy."

The fact that the rate of economic growth is lower than originally forecast is part of Han. Nevertheless, the Bank of Korea (BOK) announced its intention to raise the key rate, indicating that it was time to pay more attention to financial stability. KDI also criticized the logic of the BOK. Recent financial anxiety, one of the potential risk factors for our economy, is that we need to mobilize micro-policy measures aimed directly at market imbalance rather than macroeconomic policies that adjust the base rate.

"The surge in housing prices in metropolitan areas, to the exclusion of the provinces, suggests that micro-policies are needed to address the imbalance in the region, rather than macroeconomic policies," KDI said. We should first look for selective responses through financial supervision rather than policies. "

As the interest rate between Hanmi and the United States widened, we advised the government to raise the rate on the possibility of financial instability in the foreign financial market. , which would result in a sudden outflow of foreign capital, to reduce discomfort through communication efforts with the market rather than reduce the Korea-US interest rate gap.

Kim said: "Although we fear that the sudden exit of foreign currencies could pose a threat to the economy because of the currency crisis and the experience of the global financial crisis, when we look at the currency strength and foreign exchange reserves of the Korean government, It is not enough to give birth to ".

However, the BOK said that even if the central bank raised its interest rate in November, its monetary policy would not turn into a contractionary trend. Lee also pointed out that, even though the BOK was raising interest rates again, the tone of monetary policy was still easing.

The governor said: "The current situation is correct with regard to monetary policy," he said during an audit of the Planning and Finance Committee of the National Assembly, the October 29th. "We think monetary policy is normalizing rather than tightening once the interest rate is raised." The Bank of Korea (BOK) maintained its level after raising its key interest rate by 0.25 percentage points, from 1.25% in November to 1.50% in November.