Bank of Korea Governor Shin Hyun-song indicated on October 12 that inflation is expected to exceed the target level of 2% for a considerable period, leaving the door open for potential interest rate hikes. With the domestic economy showing stronger-than-expected growth driven by a booming semiconductor sector, the timing and pace of any future rate increases will be determined by inflationary pressures and financial imbalances.
In his opening remarks at a National Assembly audit meeting in Seoul, Shin stated, "Inflation is expected to continue rising above the target level for a considerable time due to ongoing cost pressures and increasing demand-side pressures."
Regarding the domestic economy, he noted that despite geopolitical uncertainties in the Middle East, the semiconductor industry's strong performance has led to higher-than-expected growth. He anticipates that robust increases in exports and investments, along with improved income conditions, will support continued solid growth.
Shin assessed that volatility in financial markets has increased due to heightened external uncertainties. He explained that government bond yields have risen significantly due to rising international oil prices linked to tensions in the Middle East, expectations of interest rate hikes in major economies, and increases in global bond yields.
On the won-dollar exchange rate, he remarked that despite external uncertainties, it has remained relatively stable after a significant decline, supported by solid economic fundamentals. Stock prices, particularly in the semiconductor sector, have experienced significant adjustments but have rebounded somewhat, fluctuating in response to the situation in the Middle East and global artificial intelligence investment prospects.
In terms of financial stability, Shin noted that the domestic financial system remains generally stable, supported by the resilience of financial institutions and external payment capabilities. However, concerns about financial imbalances due to rising housing prices in the metropolitan area and increasing household debt remain significant, with potential risks from vulnerable sectors also identified.
Shin explained that the rationale behind the two consecutive interest rate hikes in July and August was to proactively prevent the spread of inflation and address financial stability risks. The Bank of Korea raised the benchmark interest rate from 2.50% to 2.75% in July and then increased it by 25 basis points to 3.00% in August.
Looking ahead, he stated, "We plan to determine the timing and pace of any further increases by closely monitoring inflation, economic trends, and financial stability conditions."
* This article has been translated by AI.
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