Economy Today: Bank of Korea Keeps Interest Firm
- The Bank of Korea has remained its interest rates unchanged amid the worsening US-China trade war cited as a risk to the economy’s growth.
- “Should the economy grow stably and inflation near the target, the main focus for the BOK will certainly become maintaining financial stability because mounting financial imbalances will eventually affect the real macroeconomy,” Lee said.
- President Donald Trump has hit the weak point in the Federal Reserve’s campaign on interest rate plan.
ECONOMY TODAY – With the escalating US-China trade war as one of the risks in Korea’s economy, the Bank of Korea has kept its interest rate unchanged. The bank has cut growth forecasts for this year and 2019.
According to Governor Lee Ju-yeol, the primary goals by the law of the Bank of Korea include price stability and caring for the economy. These said goals would be more prioritized than curbing financial imbalances such as household debt and increasing house prices. However, Lee said that these imbalances are growing concern and that they will be addressed soon enough.
“Should the economy grow stably and inflation near the target, the main focus for the BOK will certainly become maintaining financial stability because mounting financial imbalances will eventually affect the real macroeconomy,” Lee said.
In a Bloomberg survey, 18 analysts predicted that the central bank would hold the repurchase rate at 1.5% for seven days on Thursday. Meanwhile, the rest made a forecast of a 1.75% hike rate.
Lee added that there were two board members who opposed the decision and called for a hike.
There were a few BOK watchers who believed that the comments of Lee and the two opposing votes, versus one in the last meeting, were hawkish signs.
“Governor Lee’s comment that the time is nearing to put greater focus on financial instability was sort of a signal that there were discussions among the policy board today that there will be an imminent rate hike in the near future,” said JPMorgan Chase & Co Economist Park Seok-gil.
In a battle against the dollar, the won softened to as much as 0.7%, the most in a week, following the comments of Lee and the decision. The 10-year government bonds’ yield remained unmoved at 2.34% at 1:33 p.m. in Seoul.
Economy Today: Trump Hits Weak Point in Fed Rate Plan
US President Donald Trump has hit the weak point on the campaign of the Federal Reserve for a further interest rate hike. This would uncover the potential vulnerability of the campaign as what Jerome Powell probably is familiar with.
Trump has made repeated calls to Fed chairman and his colleagues regarding the hike on interest rates and stated that the inflation rate is not a problem.
“My biggest threat is the Fed because the Fed is raising rates too fast. You look at the latest inflation numbers, they’re very low,” Trump said.