BOK chief again signals rate hike to curb inflation pressure
Bank of Korea Gov. Shin Hyun-song speaks during a conference, June 1. Yonhap
Bank of Korea (BOK) Gov. Shin Hyun-song on Friday reiterated the need to raise the key rate at an upcoming monetary policy meeting to ease mounting inflation pressure stemming from the prolonged Middle East war.
"Monetary policy is inevitably subject to trade-offs among policy objectives, but such trade-offs are not significant at this time," Shin said in a message marking the BOK's 76th anniversary.
"Therefore, we need to prioritize price stability and raise interest rates without delay."
Shin said the Korean economy is growing at a solid pace thanks to robust semiconductor exports, citing 1.8 percent growth in the first quarter.
Inflation concerns, however, have intensified as the Middle East war has been under way, with the country's consumer prices rising more than 3 percent in May, marking the fastest increase in 26 months.
Core inflation, which excludes volatile food and energy prices, also rose 2.5 percent last month.
The weakening Korean won, driven by large-scale sell-offs of local stocks by foreign investors, is expected to add to inflationary pressure by raising import prices, he added.
He said financial risks are also threatening financial stability, as the latest data showed household lending increased sharply last month, mainly due to a rise in loans related to stock investments amid a market rally.
"Given the current state of growth, inflation and financial stability, the path for monetary policy is relatively clear," Shin said.
His comments came as the central bank recently signaled a clear shift toward monetary tightening in the coming months.
At its latest rate-setting meeting last month, the BOK kept its benchmark interest rate unchanged, but said it would determine the timing of a future rate hike based on inflation trends as semiconductor-driven exports continue to support economic growth.
The BOK will hold its next monetary policy meeting on July 16.