Bank of Korea deputy governor signals more rate hikes on inflation risk
The timing and pace of these should depend on incoming data, says the lender’s outgoing senior deputy governor
The Bank of Korea's outgoing senior deputy governor Ryoo Sangdai signaled that further interest rate hikes may be necessary due to concerns over inflation. Speaking to reporters on Tuesday, Aug 11, Ryoo stated that the timing and pace of rate increases should be determined by incoming data, emphasizing that the central bank's decision will hinge on whether core inflation stays elevated, economic growth remains robust, and financial stability is maintained.
The recent stabilisation of the won and the decline in the Kospi index have given policymakers some flexibility in setting monetary policy, though Ryoo downplayed these factors as critical. He noted that the central bank's benchmark rate was increased by a quarter percentage point to 2.75% in July, its first hike in over two years, following South Korea's inflation cooling to 2.8% in July but remaining above the central bank's 2% target.
Core inflation also rose to 2.6% in July. While Ryoo does not anticipate the sharp inflation surge seen after Russia's invasion of Ukraine, he cautioned that higher inflation could persist as the semiconductor boom boosts wages and consumption. The BOK governor, Shin Hyun Song, noted that upcoming policy meetings will be "live," with all options on the table.
Strong economic data, including a stronger-than-expected 0.6% growth in the second quarter and a 70% increase in working-day adjusted exports in July, have supported the case for further tightening. Ryoo highlighted that the won remains generally weak despite its recent recovery, posing an upside inflation risk by increasing import costs.
However, he expects the won to strengthen over time as fundamentals like trade and current account surpluses, and expectations for a narrower interest rate gap with the US, become more influential. If still on the board later in August, Ryoo said he would review the BOK's updated growth and inflation forecasts, as well as higher-frequency indicators, to decide on further rate hikes.
Written by urgent.news from The Business Times - Companies & Markets's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
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