Shin Seong-hwan, a member of the Bank of Korea's Monetary Policy Committee, stated on May 11 that controlling inflation is imperative despite the ongoing economic polarization. He made these remarks during a press conference as he prepares to retire on May 12, highlighting the persistent upward pressure on prices due to the entrenched 'K-shaped growth' and geopolitical tensions in the Middle East.
Shin noted, "It has become burdensome to discuss interest rate cuts," acknowledging that while some sectors may face increased difficulties with rate hikes, there are limited alternatives available. He emphasized that the priority must always be inflation, stating, "Our current inflation target is 2%. If we are at risk of exceeding that, even if inflation and growth are at odds, I believe it is appropriate to prioritize inflation."
Reflecting on his four-year term, Shin identified polarization as a significant challenge. He remarked, "Monetary policy in a polarized environment has been extremely difficult. Economic growth is a collective achievement, yet now, a sector that accounts for about 10% of the economy can dictate overall outcomes."
He elaborated on the implications of polarization, explaining that it creates scenarios where one sector may require a 3% interest rate while another may need only 2%. He noted that in the past, the trickle-down effect would eventually align these rates, but currently, the connection between sectors has weakened.
Regarding future interest rate paths, Shin indicated that the price of oil at year-end will be a crucial variable. He initially anticipated oil prices would stabilize around $70 per barrel by the end of the year, but now expects they could rise to about $90. He warned that if prices remain high, the secondary shocks to other prices would be unavoidable, leading to a more intense battle against inflation than previously expected.
On the recent rise in government bond yields, Shin attributed it to multiple factors, including the increase in long-term U.S. Treasury yields, which have influenced domestic rates. He noted that concerns about expected inflation are reflected in both U.S. and South Korean bond markets.
Concerning the semiconductor industry's concentration, Shin acknowledged that while it is a capital-intensive sector with limited impact on employment, its profitability contributes to tax revenues, which in turn supports the economy. He stated, "While there will naturally be price shocks from this process, I do not view it as a cause for concern."
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.