Ryoo Sang-dai, Senior Deputy Governor of the Bank of Korea (BOK), said "it is time to consider halting rate cuts and raising rates." Ryoo made the remarks at a press briefing during the Asian Development Bank (ADB) annual meeting on Saturday, explaining various factors that could influence rate decisions. He also offered an analysis that concerns over downward growth pressure, which had weighed against rate hikes, have actually eased compared with expectations at the onset of the Iran war, thanks to a semiconductor boom and strong exports. On the other hand, he assessed that prices are under strong upward pressure despite the government's aggressive stabilization measures, including the oil price ceiling system. Global investment banks (IBs) have also recently raised their growth forecasts for Korea this year in unison, while sounding louder alarms over inflation.
Ryoo's reference to a "rate hike" carries significance as it was delivered to reporters at the ADB annual meeting, which he attended in place of BOK Governor Hyun Song Shin. Given that Ryoo is a member of the Monetary Policy Committee (MPC), which sets interest rates, his remarks are being interpreted as a signal from the central bank that a rate hike may be imminent. It is highly unusual for an MPC member to publicly mention a rate increase. Market observers widely expect that the BOK's monetary policy meeting this month will include specific references to the timing of a rate hike.
The BOK's MPC last month held the benchmark rate at 2.5 percent for the seventh consecutive time. However, with liquidity flooding the market after a prolonged period of low rates and stimulus measures, the side effects of soaring property prices and inflation can no longer be left unaddressed. At the same time, an abrupt rate hike risks dampening the real economy and aggravating the debt repayment burden on households and businesses. The immediate concern is the potential fallout on "yeongkkeul" property buyers and "bitt-oo" stock investors who have taken on heavy loans to purchase real estate and equities.
As the central bank tasked with ensuring price and financial market stability, the BOK must find the optimal timing to prevent a growth slowdown while minimizing the shock of a rate hike. Careful management is needed to ensure that interest burdens on already struggling small business owners and small and medium-sized enterprises do not rise sharply. Predictable and finely calibrated measures are required to remove abnormal speculation and excessive bubbles, while ensuring that the normal economic activities of companies and genuine buyers are not disrupted.
