Bank of Korea Governor Hyun Song Shin said on the 9th that the central bank needs to raise its base rate, citing inflation running above the target level.
Appearing before the National Assembly's Finance, Economy and Planning Committee for a policy briefing, Shin said, "We have maintained the base rate at the 2.5% level since July last year. However, regarding the conduct of monetary policy going forward, we judge that it is necessary to raise the base rate at an appropriate time, considering inflation exceeding the target level, improving growth, and rising financial stability risks."
"Our economy has seen growth expand on the back of strong semiconductor exports driven by the global spread of AI, and nominal GDP growth in particular has risen sharply due to improved terms of trade from higher semiconductor prices," Shin said. "Going forward, we expect solid growth to continue as the semiconductor boom persists and tensions in the Middle East ease."
On prices, he said, "Consumer price inflation expanded significantly in the first half due to the impact of rising international oil prices. Despite the calming of the Middle East situation, inflation is expected to remain elevated for a considerable period as the pass-through of accumulated cost increases continues for the time being and demand-side pressures grow."
"The won-dollar exchange rate has been fluctuating at a high level in the low-to-mid 1,500 won range, despite a large current account surplus, due to continued net selling of stocks by foreign investors and the strength of the U.S. dollar," Shin said. "Stock prices had risen steeply on the back of strong performance in key industries and improvements to capital market rules, but have recently undergone some correction as foreign investors expanded selling for profit-taking and portfolio rebalancing purposes."
Shin noted, "The domestic financial system has remained broadly stable despite high uncertainty in external conditions, supported by expanding growth in the real economy and the sound resilience of financial institutions." He added, however, "Risks such as the accumulation of financial imbalances stemming from renewed acceleration in housing prices in the Seoul metropolitan area, along with high volatility in financial and foreign exchange markets, remain latent as destabilizing factors."
"The Bank of Korea has actively worked to stabilize financial and foreign exchange markets in coordination with the government amid high domestic and external uncertainty, and is also pursuing various institutional improvements to respond effectively to changes in the financial and economic environment," he added.
