SEOUL, June 25 (Reuters) - South Korea’s central bank will ready steps to unwind monetary stimulus once the coronavirus crisis eases, although it would maintain its accommodative approach for now given current challenges, its chief said on Thursday.
The Bank of Korea has delivered a combined 75 basis point cut since the coronavirus outbreak, pledged unlimited liquidity and extended loans to securities firms for the first time in the its 70-year history.
“If the expanded liquidity is not withdrawn in a timely manner when consumption sharply picks up after the coronavirus situation eases, it could act as an inflationary pressure,” Governor Lee Ju-yeol told a news conference.
“Though the inflationary risk is not a concern for now, there is a need to prepare steps for normalisation (of monetary measures) to stabilise price and to secure financial stability,” Lee added.
In late May, the bank downgraded its 2020 economic projection to a 0.2% decline, the worst since the 2008 global financial crisis.
Asked if the bank could further downgrade its forecast, Lee said the virus situation had not changed much since its May meeting.
Lee’s remarks came as the bank published its statement on the biannual review of its inflation-targeting framework.
The bank sees inflation at 0.3% this year, well below its target of 2%, although the risk of deflation in Asia’s fourth-largest economy is low, Lee told reporters.
But he added the bank’s inflation-targeting framework should be reviewed if the trend of low inflation and growth persisted. (Reporting by Joori Roh; Editing by Clarence Fernandez and Sam Holmes)