Rhee Chang-yong, Governor of the Bank of Korea (BOK), warned Monday about the need for a continued restrictive monetary policy due to growing inflation uncertainties. The central bank has held its key interest rate steady at 3.5% for the sixth consecutive time, following seven successive rate hikes from April 2022 to January 2023.
The governor further cautioned that despite an anticipated deceleration, consumer price growth could surpass the 2% target rate due to unstable global oil prices and currency rates after the Israel-Hamas conflict. A surge in household debt growth might necessitate a policy rate hike, emphasized Rhee, voicing concerns about potential repercussions on the financial market if household debt continues to surge despite stricter loan regulations.
Last month saw a 3.7% inflation surge, the fastest in five months, driven by higher oil costs and rising farm goods prices. This is despite the BOK’s assertion that weak demand-side pressure and stable farm goods prices might help slow inflation. However, the ongoing Israel-Hamas conflict could hinder this.
The BOK projects that inflation will exceed 3% by year-end, significantly above its target rate, with a full-year inflation expectation of 3.5%. This comes amidst a slowdown in growth and escalating uncertainties such as the ongoing Ukraine-Russia war and rising household debts.
The Monetary Policy Board of BOK has maintained a 0.5% interest rate for six successive meetings, with an upcoming decision on November 30th. The governor’s comments were made during a parliamentary inspection, where he emphasized BOK’s commitment to a restrictive policy for price stabilization.
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