Bank of Korea board member says growth, financial stability key to interest rate cuts

SEOUL (Reuters) – A South Korean central bank board member said economic growth and financial stability are key factors for the monetary policy board to consider as it determines the timing and pace of interest rate cuts.

“We should simultaneously consider the impact of interest rate cuts on economic growth and financial stability,” Hwang Kun-il, a member of the Bank of Korea’s seven-seat policy board, was quoted as saying in a quarterly policy report released Thursday.

Slowing domestic demand increases the need for precautionary responses, but household debt is at a level that poses financial risks, Hwang said.

Hwang added that an appropriate combination of fiscal policy and macroprudential regulations is needed to minimize trade-offs between the two policy objectives.

The Bank of Korea last month kept its policy interest rate at 3.50 percent, the highest since late 2008, but revived expectations of imminent policy easing, which some analysts expect as early as next his meeting on October 11.

The central bank’s board members were cautious about cutting interest rates last month as they worried about growing risks to financial stability despite slowing inflation, minutes from the policy meeting showed.

In the quarterly report, the central bank said there was great uncertainty about the outlook for the housing market and that domestic demand was expected to gradually improve as higher corporate earnings and disinflation boosted consumer purchasing power.

In financial markets, the Bank of Korea said the likelihood of Treasury bond yields falling sharply in the near term was low, and the recent strength of the Japanese yen was unlikely to have a negative impact on the Korean won or capital flows.