Seoul: The governor of the Bank of Korea (BOK) stated on Thursday the necessity for a rate hike at an appropriate time, emphasizing that the central bank will evaluate various factors, including persistent inflation above target and other financial risks.
According to Yonhap News Agency, BOK Gov. Shin Hyun-song made these comments during a National Assembly session, highlighting that South Korea's economy is predicted to sustain solid growth supported by the semiconductor industry cycle and reduced geopolitical tensions in the Middle East. Shin expressed the need to consider factors such as inflation, improved growth, and extended risks for financial stability when contemplating a rate hike.
In response to a lawmaker's inquiry about a potential significant rate increase, Shin clarified that he was providing a general background without further details. The central bank's Monetary Policy Board is scheduled to decide on the key rate next Thursday.
Shin also noted that inflation is anticipated to stay elevated for a "considerable period" despite the easing of Middle East-related factors, due to the lingering impact of previous cost increases. Regarding foreign exchange volatility, Shin mentioned the possibility of the Korean won strengthening against the dollar.
The recent decline of the Korean won against the greenback was attributed to market expectations of changes in U.S. monetary policy, alongside foreign investors' portfolio adjustments in South Korea. Shin assured that the country currently does not lack liquidity to implement measures like currency swaps, which are used to supply liquidity when necessary.
He further commented on the recent foreign investor sell-off, predicting that it would ease later this year. "Due to gains in South Korean stocks, foreigners are continuing to sell shares as they reduce their holdings," Shin said. "I believe the selling will ease somewhat in the second half of this year."
In a central bank report submitted to parliament, the BOK noted that the potential for the South Korean stock market to enter a downward trend remains limited. It highlighted that chipmakers' operating profit outlooks are being revised upward and that the government is working to improve capital market policies.
The BOK is also focusing on policy recommendations from a neutral and long-term perspective, addressing structural issues such as low birth rates, aging demographics, balanced regional growth, and climate change, according to Shin.