SEOUL (Reuters) – South Korea’s central bank chief said in a New Year’s message on Tuesday that monetary policy should remain accommodative in 2020 as the economy is heading for only a modest recovery.
But Bank of Korea Governor Lee Ju-yeol also said policymakers should be wary of volatility in financial markets and the risks that financial imbalances may deepen.
“For the coming year there’s a need to keep monetary policy accommodative as economic growth will likely hover below the potential growth rate, while the demand-side inflationary pressure will stay weak,” Lee said in a statement.
Lee said tougher global trade conditions and geopolitical risks will remain for the export-dependent economy, in addition to demographic and labor challenges.
His remarks come as data on Tuesday showed South Korea’s consumer inflation picking up in December but its full-year reading set a record low, reinforcing expectations the central bank will need to cut interest rates again next year.
The Bank of Korea has already cut the key policy rate <KROCRT=ECI> twice this year to 1.25%, matching the record-low rate seen until late 2017, to support faltering economy and cooling domestic demand.
Lee also pledged to take market stabilization measures in case volatility in financial markets rises, while expressing concerns over excessive capital flows into real estate and risky assets, which could deepen financial imbalances.
Earlier in December, the government announced new property market regulations, including tighter mortgage guidelines, to rein speculation and galloping property prices.
(Reporting by Joori Roh; Editing by Sam Holmes)