The Bank of Korea should refrain from any immediate interest-rate move and has “leeway” because the Federal Reserve isn’t expected to move until late 2015, an economic adviser to President Park Geun Hye said.
“If we raise the interest rate to discourage borrowings, it will damp already weak consumption and may trigger more defaults, escalating into a systemic risk,” Hyun Jung Taik said in an interview in Seoul yesterday. Hyun is vice chairman of the National Economic Advisory Council, which is chaired by Park.
Hyun’s comments show the scope for government pressure on the central bank to support the economy’s recovery, as the BOK prepares for a leadership change in April after Governor Kim Choong Soo’s term ends. Governor Kim and his board this month held the seven-day repurchase rate steady at 2.5 percent.
“With the property market and consumption staying in the doldrums for too long, we need to boost the economy,” Hyun said. “Growth will lead to more jobs and higher incomes, which in turn will improve the people’s ability to repay the debt.”
He said that any immediate cut in interest rates should also be avoided because of risks associated with capital flight and household debt.