SEOUL – The Bank of Korea should not rush to lower interest rates as price stability remains the top policy priority for the central bank over slowing domestic demand, a departing board member said on Tuesday.
“There is no need to lower interest rates in a rush because economic growth is projected to be above the potential growth rate, while there are several uncertainties and financial markets have been under accommodative conditions for a few months,” Cho Yoon-je told a press conference.
Cho’s four-year term as a member of the seven-seat monetary policy board ends on April 20. His last meeting was on Friday, when the central bank kept the policy rate, now at a 15-year high, unchanged for the 10th straight meeting.
Cho said it was also important to bring inflation down to the central bank’s target level of 2% as soon as possible to reduce the accumulated burden in recent years of high inflation.
In a reference to the won, which hit a 17-month low and breached a major psychological threshold of 1,400 per dollar on Tuesday, Cho said its recent weakness was sharper than for other currencies but not so excessive to worry about.
Heightening tensions in the Middle East were likely behind the won’s sharp losses last week, given the fact that most of South Korea’s oil imports are supplied by the region, he said.
Cho said the central bank needed to be cautious about expanding its current three-month forward guidance to a longer time period, because domestic monetary policy is affected by different external and internal factors, unlike in the case of the U.S. Federal Reserve.
