The Bank of Korea said Thursday it must adjust how accommodative its monetary policy stance is to ensure price stability, suggesting the central bank will continue to raise its policy rates to curb rising inflation.
"To prepare against an increase in world economic uncertainties due to the growth in global inflationary pressures and international financial market instability, the degree of monetary policy accommodativeness must be adjusted at an appropriate speed and extent, with an emphasis on ensuring that the basis for price stability is firmly anchored amid continuing sound economic growth," the BOK said in its biannual financial stability report.
The central bank kept its benchmark interest rate unchanged at 3% earlier this month after raising it by 25 basis points in March for the fourth time in less than a year. But the BOK is widely expected to raise the policy rate as early as next month as the country's consumer price inflation shot to a 29-month high of 4.7% in March, remaining above the central banks' target band of 2%-4% for a third straight month.
In its Thursday report, the BOK said macroprudential policies must be strengthened to ensure the domestic financial system is stable.
"A strengthening of policy efforts that can suppress the excessive in- and out-flows of foreigners' investment funds is necessary. In this regard, the utmost efforts must be made to draw up a detailed plan ensuring that the macroprudential stability levy system scheduled for enforcement from the second half can be operated without trouble," it said. It added the won's volatility versus the dollar remains at a high level compared to other Asian currencies.
South Korea is considering further tightening rules on banks' foreign-exchange transactions in a bid to curb a sharp rise in short-term external debt and help shield the economy from speculative currency flows.
The BOK also said diverse policy measures are needed to control an excessive rise in household debt as there are signs of increasing household debt defaults.
The country's external debt redemption capacity has risen mainly due to a large increase in foreign exchange reserves, which rose to an all-time high of $298.6 billion at the end of March, it said.
The BOK said there is a possibility of a rise in international financial market unrest, depending on developments with the financial problems of overly-indebted European countries.
The political unrest in the Middle East and North Africa and Japan's earthquake and nuclear reactor crisis also pose downside risks to the global economy, it said.
Source: http://online.wsj.com
"To prepare against an increase in world economic uncertainties due to the growth in global inflationary pressures and international financial market instability, the degree of monetary policy accommodativeness must be adjusted at an appropriate speed and extent, with an emphasis on ensuring that the basis for price stability is firmly anchored amid continuing sound economic growth," the BOK said in its biannual financial stability report.
The central bank kept its benchmark interest rate unchanged at 3% earlier this month after raising it by 25 basis points in March for the fourth time in less than a year. But the BOK is widely expected to raise the policy rate as early as next month as the country's consumer price inflation shot to a 29-month high of 4.7% in March, remaining above the central banks' target band of 2%-4% for a third straight month.
In its Thursday report, the BOK said macroprudential policies must be strengthened to ensure the domestic financial system is stable.
"A strengthening of policy efforts that can suppress the excessive in- and out-flows of foreigners' investment funds is necessary. In this regard, the utmost efforts must be made to draw up a detailed plan ensuring that the macroprudential stability levy system scheduled for enforcement from the second half can be operated without trouble," it said. It added the won's volatility versus the dollar remains at a high level compared to other Asian currencies.
South Korea is considering further tightening rules on banks' foreign-exchange transactions in a bid to curb a sharp rise in short-term external debt and help shield the economy from speculative currency flows.
The BOK also said diverse policy measures are needed to control an excessive rise in household debt as there are signs of increasing household debt defaults.
The country's external debt redemption capacity has risen mainly due to a large increase in foreign exchange reserves, which rose to an all-time high of $298.6 billion at the end of March, it said.
The BOK said there is a possibility of a rise in international financial market unrest, depending on developments with the financial problems of overly-indebted European countries.
The political unrest in the Middle East and North Africa and Japan's earthquake and nuclear reactor crisis also pose downside risks to the global economy, it said.
Source: http://online.wsj.com
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