The holding of the regular meeting of the Monetary Policy Committee of the Bank of Korea, which determines the base rate, is about a week away. According to the results of the previous meeting, an interest rate hike seems likely, but the variable is that the spread of the new coronavirus infection (COVID-19) shows no signs of abating. Even among experts, opinions are divided, but looking at various indicators alone, the possibility of an increase in the spread of COVID-19 is still high.
The Monetary Policy Direction Decision Meeting of the Monetary Policy Committee of the Bank of Korea on the 17th will be held on the 26th. As current Monetary Policy Committee member Koh Seung-beom was recently appointed as the chairman of the Financial Services Commission, the meeting will proceed as scheduled except for Koh.
Koh is expected to step down this week, but it is difficult to complete the appointment of a successor until the next meeting due to the procedure for appointing the President of the Bank of Korea to nomination.
A BOK official said on the same day, "Considering the independence of the Monetary Policy Committee and conflicts of interest as a nominee for the Financial Services Commission, Koh decided to advance his retirement schedule earlier than originally planned, but next week's meeting will be attended by only six people, not seven." .
Koh is a “hawk” who insisted on an immediate rate hike at the last meeting held on July 15th. There was an analysis that the rate hike might be delayed due to the absence of Koh, but the minutes of the meeting released on the 3rd confirmed that four members besides Koh discussed the need for an early rate hike, so the theory of an interest rate hike in August is gaining momentum again. got it
Looking at the economic indicators, exports, inflation, and household loan status support the need for interest rate hikes.
Despite the re-spread of COVID-19, Korea's exports in July surpassed $55.4 billion, the highest in the history of trade on a monthly basis. Although there is a possibility that the growth rate will decrease, the overall export trend is expected to continue in the second half of the year. The BOK maintains its forecast that the economy will grow at 4% this year.
The inflation rate has long since exceeded the BOK's management standard of 2%. According to the Consumer Price Trend of Statistics Korea, the July index was 107.61, up 2.6% from the same month last year. After entering the 2% range in April, it has continued to record the 2% range.
Household loans are not declining even under the management of the government. Household loans from the entire financial sector, compiled by the Financial Services Commission, increased by 78.8 trillion won from January to July this year, up 32.9 trillion won (71.6%) from 45.9 trillion won in the same period last year. Compared to the same period before COVID-19, the rate of increase is 3.3 times.
It is analyzed that household loans were mainly used for ‘debt investment’, where debt is invested in stocks, and for housing purchases and jeonse funds.
Although it cannot be seen that the MPC is following the current trend in the US, the recent growing voice of early “tapering” (reducing quantitative easing policy) in the US could also affect interest rate hikes.
A negative factor in the rate hike is the re-spread of COVID-19 triggered by a delta mutation. Although the Monetary Policy Committee members needed to raise interest rates to stabilize monetary policy, they were wary of future economic uncertainty.
In fact, the Consumer Confidence Index (CCSI) in July was 103.2 in July, down 7.1 points from the previous month. This is the first decline this year. However, the economic ripple effect of the 4th COVID-19 pandemic is estimated to be lower than that of the 1st and 3rd waves. For this reason, there is a prevailing view that the MPC will focus more on financial stability than on economic uncertainty caused by COVID-19.
Seong Tae-yoon, a professor of economics at Sungkyunkwan University, said, “There are concerns that the COVID-19 situation is not getting better, but it is necessary to make some adjustments as inflation itself is making life difficult for the people. If we do not make adjustments, we will have no choice but to send a signal of adjustment.”
However, there are a number of reservations about the burden of raising interest rates immediately in consideration of public sentiment due to COVID-19.
Kim So-young, a professor of economics at Seoul National University, said, “There is a need for a raise,” but “If you are confident that the economy will recover, you can raise it. ” he observed.