May 31, 2017 / 6:03 AM / 6 months ago

S.Korea board member says policy rate should stay accommodative

SEOUL, May 31 (Reuters) - A board member of South Korea’s central bank said on Wednesday that monetary policy should stay accommodative as boosting private consumption is still a challenge when inflation is not expected to exceed the central bank’s target in the medium term.

Bank of Korea board member Koh Seung-beom said the central bank also needs to play a more active role in supporting small- and medium-sized companies struggling with their finances even though interest rates are at a record low of 1.25 percent.

“Going forward we will need to keep monetary policy accommodative,” Koh told reporters at a news conference.

“It’s good to see improvements in exports and facility investments thanks to a recovery in global demand, but there doesn’t seem to be a solid recovery in consumption so we can’t say domestic demand is strong.”

Koh, known as a dove on the central bank’s seven-member policy board, did not provide more details on the policy financing programme in place to support small businesses.

He noted that inflation would not exceed the central bank’s target of 2 percent in the medium term, which would support its stance that interest rates should stay easy while the government drafts fiscal stimulus measures.

The central bank last lowered its policy rate in June 2016 and has kept it at 1.25 percent since then.

Inflation hovering around the central bank’s target of 2 percent this year has muted calls to ease interest rates further this year, and some economists predict the next policy move would be a hike.

In a survey of 19 economists conducted by Reuters in May, nine predicted a rate hike next year as the central bank’s next move, while 10 said the BOK board would not adjust policy rates for some time.

Koh said he was closely watching soaring household debt as the high level of borrowings was increasingly an important factor in monetary policies. (Reporting by Cynthia Kim; Editing by Jacqueline Wong)

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