The Bank of Korea: "Han, Low Possibility of Stagflation... Steady Increase in Private Consumption"

[Image source=Yonhap News]

[Asia Economy Reporter Seo So-jeong] The Bank of Korea has assessed that the likelihood of South Korea experiencing stagflation, a situation where inflation rises amid an economic recession, is low.

On the 9th, Park Jong-seok, Deputy Governor of the Bank of Korea, stated at a press briefing related to the 'Monetary and Credit Policy Report,' "Although concerns about stagflation have recently increased, considering the domestic economic situation, I believe the probability of stagflation under the base scenario is low."

Deputy Governor Park said, "The domestic economy is still growing above the potential growth rate at present," adding, "We will pay close attention to various concerns, monitor changes in the economic situation, and consider policy directions accordingly."

He particularly predicted that private consumption will lead economic growth going forward.

Deputy Governor Park emphasized, "Since the second quarter, social distancing measures have been significantly eased, leading to a substantial increase in face-to-face service consumption. Although exports are expected to slow due to a global demand slowdown, private consumption is anticipated to maintain a solid growth trend."

Regarding concerns that South Korea could face massive capital outflows due to the U.S. raising policy interest rates by 0.5 percentage points at once, known as a 'big step,' he said, "Although exports may slow somewhat, the current account surplus is expected to continue," adding, "Capital outflows are influenced more by external soundness and fundamental factors than just interest rate differentials, so considering South Korea's fundamentals, we do not foresee a rapid capital outflow."

When asked about the possibility of a big step in the base interest rate by the Financial Monetary Policy Committee in the future, Deputy Governor Park responded, "At present, we do not completely rule out the possibility of a big step and keep it open, but I think it is still appropriate to raise rates by 0.25 percentage points."

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