Bank of Korea Governor Shin Hyun-song speaks during a press conference on monetary policy direction at the central bank’s headquarters in Jung District, central Seoul, on May 28. [NEWS1]
Shin Hyun-song, governor of the Bank of Korea, has clearly signaled that an interest rate hike may come soon. After chairing his first Monetary Policy Board meeting since taking office, Shin said the direction ahead looked “relatively clear” considering inflation, growth, exchange rates and housing prices. His remarks strongly suggested that monetary tightening is approaching. “The issue is when, how quickly and how far rates should rise,” he said.
The board kept the benchmark interest rate frozen at 2.5 percent for an eighth consecutive meeting. Still, markets expect the rate could rise two or three times within the year. Two board members submitted dissenting opinions calling for an immediate 0.25 percentage-point hike. The board’s dot plot, which reflects members’ six-month outlook for rates, also showed that the largest number expected rates to reach 3 percent.
The Bank of Korea sharply revised its forecasts upward. It raised this year’s growth outlook from 2 percent to 2.6 percent and increased its inflation forecast from 2.2 percent to 2.7 percent. With the semiconductor boom pushing the economy toward overheating and high exchange rates and oil prices threatening to entrench inflation, signaling higher rates appears to have become an unavoidable decision for monetary authorities.
