BOK mulls business, financial stability this year while focusing on inflation

The Bank of Korea Governor Rhee Chang-yong on Wednesday said, "We will focus on inflation this year but also closely consider tradeoffs to preserve business and financial stability."

In a meeting with the Seoul Foreign Correspondents Club at the capital's Korea Press Center, he said, "Last year's focus was on inflation given the situation of a continuously high inflationary rate of over 5%."

On raising the benchmark interest rate on Friday last week from 3.25% to 3.5%, the governor said, "Before the interest rate announcement, half of the market expected 3.5% per year and the other half 3.75% as the final rate."

"Market players who expected 3.75% would have adjusted their forecasts expecting a rate fall. So room for a decline has appeared," he added.

"Since the interest rate level is high, we must consider raising rates if inflation rises higher than expected and if it proves lower (than expected), we should think about growth and financial stability."

On this year's inflation, he said, "Cumulative pressure to raise costs (due to rising energy prices) will be reflected later in this year's electricity and gas bills," adding, "The pace of inflation decline in Korea could be relatively slower than in major economies."

Turning to household debt, the governor said, "Korea's ratio of household debt to GDP is the world's highest at 105%," adding, "Decisions on monetary policy are getting more complex."

Write to Mi-Hyun Jo at mwise@hankyung.com