BOK chief signals additional rate hikes to tame inflation

Bank of Korea Gov. Shin Hyun-song speaks during a policy briefing session at the National Assembly in Seoul, Wednesday. Yonhap

Bank of Korea (BOK) Gov. Shin Hyun-song reaffirmed the central bank's rate-hike stance Wednesday, reinforcing market expectations that another rate increase could come as early as August.

"I believe it is most reasonable to maintain the rate-hike stance to bring down core inflation," Shin said during a National Assembly session in response to a lawmaker's question on whether the BOK plans to raise its benchmark interest rate one or two more times this year.

"The timing and pace of any further rate hikes will depend on incoming economic data and overall economic conditions," he added.

The remarks have reinforced expectations that the Monetary Policy Board could deliver a second consecutive rate hike at its next rate-setting meeting set for Aug. 27.

The central bank raised its benchmark interest rate by 0.25 percentage points to 2.75 percent at its July 16 policy meeting, marking its first rate increase in three and a half years. At the time, the central bank cited persistent inflationary pressures alongside stronger-than-expected economic growth driven by robust semiconductor exports.

Shin told lawmakers that the Korean economy has gained momentum as strong chip exports and investment fueled by the global artificial intelligence (AI) boom continued to support growth.

Despite the upbeat growth outlook, he maintained a cautious view on inflation.

"Inflation is expected to remain above the target level for a considerable period," the governor said.

Responding to a lawmaker's question about whether annual consumer inflation could remain below 3 percent this year, Shin said headline inflation accelerated to 3.2 percent in June due mainly to temporary factors, while core inflation — which the central bank considers a more important gauge of inflation pressures — rose to 2.5 percent in May.

He added that inflationary pressures continue to be driven not only by uncertainty over global oil prices stemming from tensions in the Middle East, but also by resilient domestic demand amid solid economic growth.

Regarding financial markets, Shin said external uncertainties have heightened volatility in stock and foreign exchange markets.

"Stock prices have recently undergone a sharp correction amid mounting concerns over AI-related investments and heavy foreign selling," he said.

Shin said the domestic financial system has remained broadly stable despite heightened external uncertainties, supported by solid economic growth and the resilience of financial institutions.

"However, elevated volatility in financial and foreign exchange markets, along with the risk of widening financial imbalances driven by rising housing prices in the Seoul metropolitan area, remains a key risk factor," he said.