Bank of Korea likely to raise interest rates further, outgoing deputy chief says
The logo of the Bank of Korea is seen on the top of its building in Seoul, South Korea, July 14, 2016. REUTERS/Kim Hong-Ji
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SEOUL, Aug 11 : South Korea’s central bank will raise interest rates further to respond to persistent inflationary pressure, the outgoing deputy chief said on Tuesday.
“Unless there is an extraordinary shock or an extraordinary factor, the possibility of an additional rate hike is high,” Bank of Korea Senior Deputy Governor Ryoo Sang-dai said at a press conference as his three-year term comes to end on August 20.
“Because interest-rate policy is conducted ex ante and pre-emptively, there will be an additional hike as we look at the growth and inflation outlook,” said Ryoo, a member of the central bank’s seven-seat monetary policy board.
Last month, the BOK raised interest rates for the first time in 3-1/2 years and flagged more to come, as brisk growth in Asia’s fourth-largest economy fanned inflation risks, with some board members suggesting preemptive action.
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The central bank is more concerned about demand-driven inflation than any supply shock stemming from the Middle East conflict, Ryoo said, as the domestic economic recovery is expected to generate gradual and persistent upward price pressure.
Ryoo said he would look to export and credit card spending data to help shape the policy decision if he were to attend the August 27 meeting. Recent gains in the currency and stock market volatility might warrant closer discussion by board members, but are not significant drivers of policy decisions, he added.
Last week, data showed inflation softened to a three-month low in July, undershooting market expectations on a fall in oil prices, though policymakers remained wary of upward pressures and markets haven’t ruled out a possible back-to-back rate hike this month.
Fuelled by soaring chip exports amid the global AI boom, the trade-reliant economy outpaced forecasts in the second quarter, building on its strongest quarterly growth in almost six years in the first.
Ryoo stopped short of signalling the pace or extent of any further rate increases.
With the won trading near 10-month highs after a sharp rally last month, Ryoo said exchange rates in the 1,400 won-per-dollar range were still “very high” and continued to exert significant upward pressure on inflation.
He said the dollar-won rate was unlikely to fall rapidly because some temporary factors were still at play, though the broader trend pointed to further declines.
Source: Reuters
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