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Bank of Korea to Continue Monetary Easing Amid Fears of K-shaped Recovery

by CBDC Insider
December 31, 2020
in Asia, Business
Reading Time: 2min read
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Bank of Korea to Continue Monetary Easing Amid Fears of K-shaped Recovery
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Bank of Korea (BOK) Governor Lee Ju-yeol has reiterated its position to maintain monetary easing in 2021, amid fears the economy could undergo a “K-shaped recovery.”

“The economy is forecast to be on track for a gradual recovery, but as uncertainties remain in place, the central bank will keep the accommodative monetary drive until the economy gets back on the stable recovery path,” Lee said in a New Year address, Thursday.

Responding to the economic shock and social impacts of COVID-19 and addressing the country’s financing challenges, the country’s central bank slashed its benchmark policy rate to a record low of 0.5 percent. With the U.S. Federal Reserve also clarifying its intention to maintain a near-zero interest rate for more years, the BOK is continuing its current rate policy until the coronavirus pandemic ends.

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The central bank chief said economic polarization would deepen in the aftermath of the virus outbreak.

“The pandemic is widening the imbalance among the various classes of households here, at a time when a low birthrate and an aging population are already putting the brakes on the economy’s revitalization,” he said. “If the economy undergoes a K-shaped recovery, then this will keep driving the self-employed and those in the low-income bracket into a corner.”

A K-shaped recovery refers to a post-recession economy showing widening polarization when various parts of the economy recover at different rates.

Lee also underlined the need for the central bank to be on high alert to ensure financial stability in the new year.

“We will keep monitoring possible financial risk factors such as rising household debt, and the gap between the real economy and asset prices,” he said. “The BOK will tighten its monitoring of such (outstanding) risk factors and apply countermeasures (if needed) by collaborating with the government.”

Aside from the macroeconomic policy plans, the central bank also committed to keep working on its research on the central bank digital currency (CBDC).

“The environment over the payment and settlement system is rapidly changing amid digital innovation and big tech firms’ expansion into financial sectors,” Lee said. “We will keep carrying out our pilot tests over the virtual issuance of the CBDC, while at the same time ensuring security in the payment and settlement system.”

Regarding growing calls for the BOK to expand its role into the employment sector, Lee repeated his earlier position that it would keep in touch with advisory groups here and abroad over whether to do this.

“The stabilization in terms of employment backs up sustainable growth and improves the quality of lives of people, therefore, the central bank needs to view employment-related issues as considerations when carrying out monetary policy,” he said.

Read more: https://www.koreatimes.co.kr/www/biz/2020/12/367_301750.html

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