Bank of Korea Governor Shin Hyun-song stated on July 16 that it is necessary to maintain the trend of increasing the benchmark interest rate. This comment follows the central bank's shift to a tightening monetary policy for the first time in three and a half years, indicating potential further rate hikes.
During a press conference after the Monetary Policy Committee decided to raise the benchmark interest rate by 0.25 percentage points, Governor Shin noted, "The domestic economy is showing signs of improvement, and inflation is expected to exceed the target level for a considerable period." He added that the timing and pace of any additional increases would be determined based on incoming data.
The Monetary Policy Committee raised the benchmark interest rate from 2.50% to 2.75%. Governor Shin explained that the unanimous decision to increase rates is supported by the need for higher rates in terms of growth, inflation, and financial stability.
He remarked, "In terms of growth, the positive impact of the semiconductor market is expected to lead to robust trends in both exports and domestic consumption, resulting in a significant increase in growth rates compared to the forecasts made in May." He also mentioned that South Korea is likely to benefit as a key player in the artificial intelligence (AI) value chain, with high growth in exports and investments anticipated, while soaring semiconductor prices could lead to unprecedented nominal GDP growth, supporting domestic demand.
Regarding inflation, he stated, "We expect consumer prices to exceed the target level for a considerable period." He noted that while international oil prices have decreased, the impact of rising costs and exchange rates continues, and the semiconductor boom is likely to increase demand-side inflationary pressures.
Governor Shin also addressed risks related to financial stability, saying, "In the metropolitan area, expectations for rising housing prices persist, and improvements in income and asset conditions may lead to increased domestic capacity, raising concerns about significant price increases." He warned that there could be ongoing pressure from rising household debt in the financial sector and that the foreign exchange market is experiencing significant fluctuations, necessitating risk management.
* This article has been translated by AI.
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