BOK Seeks to Clarify Governor Lee's Remarks on Higher Rates

(Bloomberg) -- Just hours after the Bank of Korea Governor Lee Ju-yeol said the central bank should raise its benchmark interest rate when it becomes possible to do so, the bank released a statement saying Lee was just speaking in "general terms."

Lee's remarks on the need to raise rates were made as he was giving a general explanation on a theoretical situation in which financial imbalances may occur, the statement said. Earlier, Yonhap reported Lee saying “financial imbalances may increase should BOK maintain the current interest rate when Korea's economy continues 3 percent growth and inflation consolidates at 2 percent.”

Central bank accommodation should be eased when “various conditions match up,” the South Korean news agency reported Lee saying in Manila, where central bank governors held a meeting. Lee also said that he's paying close attention to consumption, investment, tourist numbers and the country's employment rate, and not just inflation. The impact of the minimum-wage hike on consumer prices also needs closer examination, he said.

South Korea's economy expanded 2.8 percent in the first quarter from a year earlier and remains on track to grow 3 percent this year. Inflation is projected by the central bank to register 1.6 percent in 2018, slightly below the bank's previous forecast. The Bank of Korea kept its key interest rate at 1.5 percent on April 12, and board members reiterated the need to maintain the current accommodative policy, according to minutes of last month's meeting.

Lee also said it's possible that discussions with Japan on a suspended currency swap deal will resume sometime in the future. Finding the right time for negotiations will be an issue because related departments in Japan must also be involved in order to reach an agreement, he said, according to Yonhap.

While the BOK has been doing research on the foreign-exchange market and the bank's role in various scenarios related to the unification of the two Koreas, the central bank so far has no plans to expand its research team, Lee said.

To contact the reporter on this story: Hooyeon Kim in Seoul at hkim592@bloomberg.net.

To contact the editors responsible for this story: Stanley James at sjames8@bloomberg.net, Andrew Davis, Subramaniam Sharma

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