BOK chief sees need to maintain accommodative stance

South Korea’s central bank chief said in a New Year’s message on Monday that policy should remain accommodative next year as demand-side inflation pressures were expected to remain low.

“For the coming year there’s a need to keep monetary policy accommodative as the economy is likely to show mid-2 percent growth and inflation pressure on the demand side will not be high,” Bank of Korea chief Lee Ju-yeol said in a statement.

South Korea’s December headline inflation slowed to 1.3 per cent in annual terms, far below the central bank’s target of 2.0 per cent, which led average 2018 annual inflation to ease to 1.5 per cent from 1.9 per cent in 2017. Core inflation, excluding volatile energy and food prices, was the lowest since 1999.

Lee again expressed concerns over the country’s high household debt, still growing faster than incomes, adding that the central bank will closely watch capital flows that may fluctuate as the United States normalises monetary policy, according to Reuters news agency.

The Bank of Korea raised its policy rate KROCRT=ECI by 25 basis points to 1.75 per cent on November 30, to help curb growth in household debt rather than to cool the economy.

The finance ministry expects Asia’s fourth-largest economy to post annual growth of between 2.6 and 2.7 per cent this year and next year.