Bank of Korea (BOK) Governor Shin Hyun-song signaled the possibility of further interest rate hikes again on the 29th, saying, "There is a need to continue the rate-hike stance going forward." After raising the base rate to 2.75 percent in July, he made clear his intention to maintain a tightening stance in consideration of inflation and financial stability conditions.
In his opening remarks during a business report to the National Assembly's Finance, Economy and Planning Committee that day, Shin said, "The Bank of Korea raised the base rate from 2.5 percent to 2.75 percent at the July meeting in consideration of overall policy conditions, and judges that there is a need to continue the rate-hike stance going forward."
He explained, "We plan to decide the timing and pace of additional hikes while reviewing the degree of inflationary pressure, the trend of economic improvement, and financial stability conditions."
On the Korean economy, Shin projected, "With the global spread of artificial intelligence (AI), exports and investment centered on semiconductors have continued to grow at a high pace and consumption has also shown a favorable trend, expanding the growth momentum." He added, "Going forward, the strong semiconductor cycle will continue and its effects will spread to other sectors, sustaining robust growth."
He maintained caution on inflation. "Amid persistent uncertainty over international oil prices depending on the situation in the Middle East, the effects of previously elevated costs and the exchange rate will continue, and demand-side pressure from improving income will also gradually expand, so the upward trend exceeding the target level will continue for a considerable period," he assessed.
Regarding financial markets, he judged that volatility had expanded due to external uncertainties. He explained that the won-dollar exchange rate rose sharply owing to the Middle East situation and dollar strength, but fell to the mid-to-high 1,400-won range after July as foreign exchange supply and demand improved. He said that government bond yields rose amid inflation concerns and shifts in monetary policy expectations before fluctuating in line with the Middle East situation, while stock prices underwent a significant correction due to concerns over AI investment and large-scale net selling by foreign investors.
However, Shin pointed out, "The financial system is generally maintaining stability, supported by the expanding growth momentum of the real economy and the sound resilience of financial institutions," while adding, "The high volatility in the financial and foreign exchange markets and the risk of accumulating financial imbalances stemming from rising housing prices in the greater Seoul area are potential destabilizing factors."
