Bank of Korea Governor Shin Hyun-song reiterated the need for an interest rate hike on July 9. The central bank has maintained the benchmark rate at 2.5% since July of last year, but has indicated a potential shift towards tightening monetary policy. Market analysts expect a significant possibility of a rate increase during the Bank of Korea's monetary policy committee meeting on July 16.
During a report to the National Assembly's Finance and Economy Committee, Governor Shin stated, "Considering the rising inflation above target levels, improvements in growth, and increased financial stability risks, a timely interest rate hike is necessary."
He noted that the nominal GDP growth rate has significantly increased due to improved trade conditions from rising semiconductor prices. He added, "The semiconductor industry's strong performance is expected to continue, and with easing tensions in the Middle East, we anticipate sustained robust growth."
On the inflation front, he warned that despite the calming of the Middle East situation, the effects of rising costs will persist for some time, and demand-side pressures are likely to keep inflation rates elevated for an extended period.
In the financial and foreign exchange markets, he observed that external uncertainties have increased, leading to greater volatility in key price variables.
Governor Shin explained, "The won-dollar exchange rate has fluctuated at a high level in the mid-1500s, despite a large current account surplus, due to ongoing foreign stock sell-offs and the strength of the U.S. dollar. While stock prices have surged due to favorable industry conditions and improvements in capital market regulations, recent foreign profit-taking and portfolio rebalancing have led to some corrections."
He emphasized that the domestic financial system remains generally stable, supported by the expanding growth of the real economy and the resilience of financial institutions, despite high external uncertainties. However, he pointed out that the increased volatility in financial and foreign exchange markets, along with the resurgence of rising housing prices in the metropolitan area, pose potential risks to financial stability.
Governor Shin concluded by stating, "The Bank of Korea has actively sought to stabilize the financial and foreign exchange markets in collaboration with the government amid high domestic and external uncertainties, and is pursuing various institutional improvements to effectively respond to changes in the financial and economic environment."
* This article has been translated by AI.
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