South Korea to begin normalising monetary policy when economy sustains recovery: central bank

[SEOUL] The Bank of Korea (BOK) will start normalising its loose monetary policy in an orderly manner once the economy is seen on track for a solid recovery, the central bank's governor said.

"The Bank of Korea ... will have to start normalising the current easy monetary policy in an orderly manner once our economy is expected to sustain a solid recovery," Lee Ju Yeol said, according to an advance copy of a speech for the bank's 71st anniversary, released on Friday.

"The timing and pace will be determined by closely examining Covid-19 developments, the strength and sustainability of economic recovery and the cumulative risk of financial imbalances."

Mr Lee also said the BOK would continue to closely monitor market instability factors, such as global inflation and expectations about changes in major economies' monetary policies, and pledged to take market stabilisation measures, if needed.

Growing household debt is another major challenge for the bank that Mr Lee highlighted, as investment in not only property and stocks but also cryptocurrency assets increased.

The bank will begin simulation testing for a central bank digital currency (CBDC) in the second half of the year and start research on the impact of climate change and the central bank's response strategy, he said.

At its May meeting, the BOK kept its base rate at an all-time low of 0.50 per cent but upgraded its forecast for economic growth this year to 4.0 per cent, from an earlier projection of 3.0 per cent.

In a Reuters poll last month, most analysts saw the BOK raising rates at least once in 2022.

REUTERS