The Bank of Korea's Monetary Policy Board said Tuesday that it will determine the timing of a base rate hike in consideration of inflationary pressures, according to its monetary policy statement.
The remark marks a step further from the board's previous statement late last year, in which it removed the phrase "base rate cut" — effectively withdrawing its signal for monetary easing — and now extends to explicitly referencing a rate hike.
The Monetary Policy Board issued the statement after holding the base rate steady at 2.5 percent on the day.
"While inflationary pressures have heightened due to the impact of the Middle East war, growth has expanded more than expected, supported by strong exports," the board said. "Given that uncertainties surrounding the development of the Middle East situation and its spillover effects remain high, we judged it appropriate to maintain the current base rate level while further examining its impact on growth and prices."
On the domestic economy, the board said, "Although the effects of rising raw material prices and supply disruptions will somewhat expand, the economy is expected to continue its recovery trend on the back of the semiconductor sector's strong performance and the supplementary budget." It projected this year's growth rate at 2.6 percent, significantly exceeding the February forecast of 2.0 percent.
Regarding domestic prices, the board said, "Amid the expanding spillover effects of rising international oil prices, demand-side pressures driven by income growth are also gradually increasing, suggesting further expansion." It forecast this year's consumer price and core inflation rates at 2.7 percent and 2.4 percent, respectively, sharply higher than the February projections of 2.2 percent and 2.1 percent.
Taking these economic indicators and outlooks into account, the board emphasized, "Going forward, monetary policy will determine the timing of a base rate hike while reviewing the extent of expanding inflationary pressures, the trajectory of economic recovery, and financial stability conditions."
Of the seven board members, five voted in favor of holding the base rate, while members Chang Yong-sung and Ryoo Sang-dae expressed the view that raising the base rate to 2.75 percent would be appropriate.
