Bank of Korea Monetary Policy Committee Minutes "Need to Be Cautious of Inflation Possibility"

Concerns Over Potential Growth Rate Decline Due to COVID-19

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eun-byeol] At last month's meeting of the Bank of Korea's Monetary Policy Committee (MPC), the committee members kept the base interest rate steady at 0.50% per annum but urged caution regarding the possibility of inflation.

According to the MPC minutes (held on February 25) released by the Bank of Korea on the 16th, one member pointed out, "Inflation concerns are becoming widespread in domestic and international financial markets, as long-term interest rates in major countries are rising rapidly," adding, "It is necessary to pay attention to the liquidity situation that has rapidly expanded during the COVID-19 response while assessing inflation conditions."

He stated, "Unlike during the financial crisis, unprecedented easing policies by central banks and governments worldwide have been implemented, along with a large-scale supply of credit from financial institutions," emphasizing, "So far, the situation appears to have a strong reflationary character (moderate price increases during economic recovery), but since the current liquidity conditions differ significantly from those during the global financial crisis and are linked to asset markets, careful monitoring is required."

Another member also advised, "The sharp rise in U.S. long-term interest rates reflects concerns about bond supply and demand due to the large-scale economic stimulus package of the Joe Biden administration, economic recovery, and inflation expectations. Market participants are closely watching the timing of the Federal Reserve's (Fed) tapering of asset purchases," adding, "Domestic long-term interest rates are also rising in tandem, so attention should be paid to the embedded expectations of global economic recovery, domestic economic improvement through exports, and inflation expectations in domestic long-term interest rates."

Yet another member suggested, "Although prices are currently low and the outlook for next year is not very high, it is necessary to analyze several issues from a longer-term perspective, such as when prices might reach target levels and how the theme of the Fourth Industrial Revolution might affect prices compared to past industrial revolutions."

One member agreed, saying, "International grain prices and other raw material prices have risen significantly above the average levels of the past 10 years since the financial crisis, so cost-push inflationary pressures may persist, and administered prices could weaken in influence along with government fiscal capacity issues," adding, "It is necessary to examine the changing inflation environment from a broad perspective and, as some members mentioned earlier, to forecast medium- to long-term inflation."

During the meeting, concerns were also raised about the decline in potential economic growth rate due to COVID-19. One member said, "According to some analyses, during the past foreign exchange crisis, the potential growth rate was maintained despite the GDP shock, but during the global financial crisis, the potential growth rate itself declined," adding, "In the case of the current COVID-19 crisis, similar to the financial crisis, there is a possibility that the potential growth rate has been impaired along with the GDP decline. More attention should be paid to this issue going forward."

This content was produced with the assistance of AI translation services.