SEOUL-- A senior official of global rating agency Moody's Investors Service said Wednesday that the outlook for South Korea's sovereign credit is stable for 2018, despite geopolitical risk over North Korea's nuclear and missile programs.
Christian de Guzman, a Moody's vice president and senior credit officer, said the risks from military escalation on the Korean Peninsula could have very far-reaching implications not just for sovereigns in Asia but also those around the world.
"The outlook for Korean sovereign credit as stable for 2018, but with important underlying risks, such as geopolitical risk," de Guzman said in a news conference in downtown Seoul.
Last month, Moody's reaffirmed its record-high Aa2 rating for South Korea, with its rating outlook also remaining stable.
In December in 2015, Moody's upgraded South Korea's credit rating to Aa2 from Aa3, the highest-ever rating the country has received from the agency.
Aa2 is the third-highest rating on the credit worthiness designation scale, with France, Britain and Hong Kong all on the same rating level.
Tensions spiked on the Korean Peninsula following North Korea's sixth and most powerful nuclear test and a series of ballistic missile tests. A war of words between the leaders of North Korea and the U.S. has stoked fears of a possible military conflict on the peninsula.
Still, these tensions have subsided in recent weeks, as North Korea has not carried out any provocation since Sept. 15, when it launched a Hwasong-12 intermediate-range ballistic missile over Japan into the North Pacific Ocean.
De Guzman said Moody's baseline is that there will not be a military conflict on the peninsula, though the probability of military conflict has risen.
"I think maybe on a scale of 1-5, it went from 5 to 4," he said, adding probability has risen to "low" from "very low."
De Guzman also said South Korea, being very export dependent, is benefiting from a synchronized global upturn, noting that what distinguishes the country from other Asian economies is that there are visible signs of spillover into the domestic economy.
"In the case of Korea, we are actually looking at a fairly robust consumption as well as an upturn in investment stemming from the increase in exports over the past year," de Guzman said.
He also said Moody's is looking at a very gradual increase in monetary policy rates across advanced economies due to the preponderance of low inflation.
"Given that low inflation is also prevalent in a lot of emerging economies, as well as other peripheral economies such as South Korea, the rate increases that we expect will also be very gradual," de Guzman said.
Graeme Knowd, managing director of corporate and financial institutions at Moody's, also said he expects central banks in most of the world, including South Korea, to raise rates next year. He said rate hikes could be generally positive to bank profitability.
On Tuesday, Tarhan Feyzioglu, Korea Mission Chief of the IMF, said in Seoul that South Korea's central bank should maintain its accommodative monetary stance, noting inflationary pressures are not strong and consumption growth could be stronger.
The Bank of Korea is set to hold its next rate review session Nov. 30 to decide whether to keep or adjust the all-time low rate of 1.25 percent.
In October, the BOK kept its policy rate at that record-low level, extending its wait-and-see approach for the 16th consecutive month.
The central bank has said "conditions are gradually being created" for tightening its monetary easing stance, but it will monitor whether the trend of improved economic conditions is steady and can be sustained amid uncertainties such as geopolitical risks and trade-related developments with major countries.
De Guzman said one of the more prominent issues in connection with a possible rate rise is household debt, calling it "a contingent risk as well as a constraint to growth."
South Korea's overall debt incurred by households came to 1,388.3 trillion won (US$1.22 trillion) as of the end of June, up 10.4 percent from a year earlier, according to data compiled by the Bank of Korea.
Source: Yonhap News Agency