The Korea Herald

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BOK chief says 2012 policy will center on price stability

By Korea Herald

Published : Dec. 30, 2011 - 20:29

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South Korea’s central bank plans to make maintaining price stability its top priority next year as Asia’s fourth-largest economy remains dogged by persistent inflation risks, its chief said Friday.

“Price stability has emerged more than ever before as an important matter of national concern,” Bank of Korea Gov. Kim Choong-soo said in his New Year’s message. “The task before us is to pay even closer attention to achieving our inflation target in 2012.”

Kim’s stress on price stability comes as the country’s 2011 consumer inflation hit the upper ceiling of the BOK’s 2-4 percent target band.

His message echoes the BOK’s 2012 monetary policy direction unveiled on Thursday, in which it said it will make efforts to prevent prolonged inflationary pressure from being entrenched by keeping close tabs on price movements.

South Korea, which recovered rapidly from the 2008 global financial crisis, has been beset by growing inflation concerns throughout this year, prompting the government to announce “a war on inflation” in January.

High oil and food prices, along with economic recovery, have exerted upward pressure on consumer inflation this year.

The BOK expects that inflation growth is likely to slow to 3.3 percent next year, but core inflation, which excludes volatile oil and food prices, is expected to be under upward pressure, indicating price pressures will continue.

The central bank cut the key interest rate by a combined 3.25 percentage points to a record low of 2 percent between October 2008 and February 2009. Since July last year, it has begun to lift borrowing costs in five steps.

The bank froze the benchmark rate at 3.25 percent for the sixth straight month in December as the eurozone debt crisis and a global slowdown increased economic uncertainty.

Despite the BOK’s vow to keep prices stable, analysts are doubtful about whether the BOK can resume its tight bias next year as economic uncertainty remains high.

While emphasizing price stability, Kim also warned against increasing downside risks to growth, saying global economic conditions “pose a grave threat to the stable growth of the Korean economy.”

The BOK said it will also take into account developments and repercussions stemming from the eurozone debt crisis and the geopolitical risks of neighboring North Korea following North Korean leader Kim Jong-il’s sudden death.

Kim also stressed the need to strike a balance between the BOK’s newly-given mandate of keeping financial stability and its key role of taming inflation.

A law to beef up the role of the BOK in coping with financial instability went into effect on Dec. 17, setting the stage for the central bank to play a role in preventing a potential financial crisis.

“We must strive to find an effective policy mix, which will enable financial stability and price stability to complement each other,” he said. 

(Yonhap News)