SEOUL, May 4 (AJP) — Bank of Korea Deputy Governor Ryoo Sang-dai on Sunday signaled that South Korea’s monetary policy may be shifting toward tightening rather than easing, becoming the first monetary board member to publicly lean toward a rate hike amid mounting inflationary pressure tied to Middle East tensions.
“Given the external shock and broader economic conditions, my personal view is that monetary policy is moving closer to a hiking cycle than a rate-cut cycle,” Ryoo told reporters during a press conference on the sidelines of the Asian Development Bank annual meeting in Samarkand, Uzbekistan.
Ryoo said economic growth is likely to remain broadly in line with this year’s official target of 2.0 percent, while inflation could exceed the central bank’s forecast of 2.2 percent.
“Based on these factors, we should move away from easing and begin deliberating tightening,” he said.
The deputy governor pointed to the blockade of the Strait of Hormuz as a key inflationary driver, with all three major crude benchmarks — West Texas Intermediate, Brent and Dubai — remaining above $100 per barrel as of Monday.
Regarding the Bank of Korea’s so-called “six-month dot plot,” which reflects monetary board members’ policy-rate outlooks over the coming half year, Ryoo said more members may shift toward supporting hikes at the upcoming May 28 policy meeting.
In the February dot plot, only one of the three dots allocated to each board member pointed to a quarter-percentage-point hike toward 2.75 percent.
“If the current situation is confirmed, there is ample room for the interest-rate path to rise compared to the February dot plot,” Ryoo said. “Probabilistically, the possibility of a rate hike is open.”
Inflationary pressure has yet to undermine economic growth.
Korea’s economy expanded 1.7 percent in the first quarter, nearly doubled from estimated 0.9 percent, buoyed by strong semiconductor exports and robust artificial intelligence-related investment.
Still, Ryoo stressed that uncertainty surrounding the duration and scope of the Middle East conflict makes policy decisions difficult.
“We cannot finalize policy when it remains unclear how long the war will continue or how far it may spread,” he said, adding that the central bank would continue monitoring developments ahead of the May meeting.
Ryoo disagreed with the Organization for Economic Co-operation and Development's downgrade of Korea’s potential growth rate estimate from 1.7 percent to 1.57 percent next year.
“Potential growth does not suddenly fall unless there is a major economic crisis,” he said, adding that the Bank of Korea still estimates the economy’s potential growth rate at slightly below 2.0 percent.
On the foreign exchange market, Ryoo acknowledged that the won’s recent trading range around 1,470 to 1,480 per dollar remains historically weak, though he avoided explicitly characterizing current levels as excessive.
“The exchange rate is determined by market supply and demand,” he said, adding that authorities would intervene only in cases of excessive volatility or herd behavior.
The Korean won opened at 1,472.9 per dollar on Monday, strengthening 10.4 won from the previous session, supported by Ryoo’s remarks and a softer dollar after the Bank of Japan intervened last week to support the yen.
Government bonds weakened following the deputy governor’s hawkish comments. The three-year Treasury yield rose 1.3 basis points to 3.608 percent by midday, while the 10-year yield held steady at 3.923 percent.
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