BOK says to keep restrictive stance, remain watchful on household debt

▲ People shop at a major discount chain store in Seoul in this file photo taken Nov. 30, 2023. (Yonhap)

▲ This file photo taken Oct. 27, 2023, shows automated guided vehicles at a port in the southeastern port city of Busan. (Yonhap)

BOK-monetary policy report

BOK says to keep restrictive stance, remain watchful on household debt

SEOUL, Dec. 14 (Yonhap) -- South Korea's central bank said Thursday it will maintain its current restrictive policy stance, given still high inflation, and keep close tab on a rise in household debt.

In its monetary policy report to the parliament, the Bank of Korea (BOK) said the inflationary trajectory is expected to be higher than expected, and will maintain its tightening mode for a "sufficiently" considerable time until it is assured that inflation is in line with its target level.

"The Bank of Korea will implement its policy in a way that inflation stabilizes at the target level (2 percent) while checking growth trends and financial stability. The bank will continue its restrictive policy stance for a considerable time with a focus on stabilizing price levels and will judge whether an additional rate hike is necessary," the bank said in the report.

The BOK said it will take into consideration the pace of the slowdown in inflation, economic downside risks, household debt trends and moves in other major economies to raise interest rates.

South Korea's inflation grew at a slower pace last month, though it stayed above 3 percent for the fourth consecutive month amid the high prices of energy and farm goods.

Consumer prices, a key gauge of inflation, rose 3.3 percent in November from a year earlier, compared with a 3.8 percent on-year increase the previous month, marking the first time in four months that the annual price growth has eased.

Last month, the BOK kept its key interest rate unchanged at 3.5 percent for the seventh straight time. The central bank delivered seven consecutive rate hikes from April 2022 to January 2023.

The central bank assessed that it is uncertain that inflation will be approaching its target level given uncertainties over a rise in public service fees, and others.

Last month, the bank jacked up its inflation forecast for next year to 2.6 percent from its earlier estimate of 2.4 percent.

As to economic recovery, the central bank said an economic recovery will be led by exports on the back of a rebound in the chipmaking sector despite a delayed improvement in private spending.

A protraction of restrictive steps in major economies, a weaker than expected recovery in China and a milder than thought recovery in private spending could pose downside risks to Asia's fourth-largest economy, the bank said.

The central bank has maintained its growth estimate for the year at 1.4 percent but slashed next year's to 2.1 percent from 2.2 percent.

The central bank said concern over rising debts in the private sector is continuing with delinquency rates rising as well.

"It needs to remain watchful that rising household and corporate debts could undermine financial stability amid climbing delinquency rates," the bank said.

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