Seoul:The head of the Bank of Korea (BOK) stated that the central bank's consecutive interest rate increases have provided necessary time to address potential financial risks. During a parliamentary audit at the BOK headquarters in Seoul, Governor Shin Hyun-song emphasized that the early rate hikes were strategically timed ahead of other major countries to preempt inflationary pressures.
According to Yonhap News Agency, the BOK raised its benchmark interest rate to 3 percent over two consecutive meetings in July and August. This move was described as a "preemptive" measure to prevent the acceleration of inflationary pressures. Shin noted that these unprecedented rate hikes sent a strong signal to the market and stabilized Korean government bond yields, which remained stable in recent weeks.
Shin also expressed regret over the lack of warning regarding the volatility and potential investor losses linked to single-stock leveraged exchange-traded funds (ETFs) that launched in May. These ETFs, associated with Samsung Electronics Co. and SK hynix Inc., were seen as significant contributors to stock market fluctuations. In response, financial authorities implemented measures to mitigate volatility.
On the issue of increased payments for overseas artificial intelligence (AI) service subscriptions, Shin stated that efforts are underway to incorporate accurate data into national statistics. South Korea recorded a $6.4 billion deficit in its intellectual property services account in the first half, largely due to software copyright payments. The BOK aims to compile more detailed statistics on AI subscription fees.
A report to the National Assembly highlighted expectations for continued economic growth driven by strong semiconductor exports. The BOK adjusted its growth forecast to 3.3 percent for 2026 and 2.9 percent for 2027, with semiconductor sector expansion benefiting domestic demand. The country's gross domestic income grew significantly in the first and second quarters of this year.
Consumer prices are predicted to remain above the 2 percent target due to strong exports and investments. Core inflation has risen nearly 3 percent recently, influenced by supply chain disruptions from the Middle East crisis. The BOK plans to monitor inflation and economic trends carefully as it considers future rate hikes, with the next rate-setting meeting scheduled for October 22.