Bank of Korea Governor Lee Ju-yeol on Thursday shot down the theory of an economic crisis in April and concerns for the economy looking at stagflation, a state of high prices while the economy remains stagnant.

The talk of looming crisis in April has been “exaggerated” from hyped anxiety about Seoul being listed as a currency manipulator in the U.S. Treasury Department’s review on foreign exchange polices of major traders due in April and cash-strapped Daewoo Shipbuilding & Marine Engineering failing to meet debt obligation in the same month, said Lee in a press conference after the monetary policy meeting that kept the base rate unchanged at 1.25 percent for the eighth straight month.

“The issues are already-known risks, and various government offices have been working to address them,” he said.

He also brushed aside worries for the chaotic mix of inflation on top of economic stagnation that led to notorious global depression in the 1970s hitting on Korea.

“Consumer price rise won’t go beyond our target of 2 percent. There is no possibility of the economy falling into stagflation,” he said.

The producer price index in January accelerated by the fastest pace in six years, gaining 1.3 percent on year, due to spike in oil and food prices. Producer price gains would translate into consumer prices two to three months later. The consumer price index in December also jumped 2.0 percent on year, the biggest rise in more than four years despite poor demand and stagnated income.

The supply-end inflationary pressure on top of rises in bond yields amid expectations for faster-than-expected tightening pace in the U.S. monetary policy gave more grounds for the BOK to hold the benchmark interest rate steady for the time being. It cannot follow the U.S. action and market expectations in fear of aggravating the private sector in debt burden. At the same time, it cannot push the interest rate down to prop up the economy amid little hope for fiscal actions from the administration in limbo due to impeachment trial in fear of risking capital flight.

The nation’s household credit showed the biggest growth of 141 trillion won ($124 billion) to amount to 1,344 trillion won last year.

“As the gain in the household debts is partly attributable to seasonality, we need to keep close watch on the movements in debts,” he said.

Lee also said the odds of Korea being listed as a currency manipulator was low. “Korea does not fit into the description. But we are not letting down our guard because there is the possibility of (Washington) tweaking the criteria and using other data,” he said.

As of 11:30 a.m. on Thursday, the benchmark five-year bond yield fell 1.7 basis points to 1.908 while 10-year yield declined 2.5 basis points to 2.221. The main Korean Composite Stock Price Index (Kospi) closed Thursday at 2,108.61 points, up 0.09 percent or 2 points from the previous session. The dollar fell 0.63 percent to 1,137.30 won.

Starting this year, the monetary policy meeting is held eight times a year. The next rate meeting is scheduled for April 13.

By Boo Jang-won

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]