The Bank of Korea’s Monetary Policy Board said on the 28th that it plans to maintain its rate-hike stance, while weighing both inflation and financial stability. The comment followed the central bank’s first rate increase in three and a half years. The board said stronger exports and investment have boosted economic growth, and inflation is expected to stay above target for a considerable period. It also said risks tied to financial stability remain in place. Looking ahead, the board expects exports and investment to continue growing at a relatively strong pace, supported by a robust semiconductor cycle, while improving income conditions should help broaden the recovery in consumption and keep overall growth solid. It added that this year’s growth rate is likely to come in significantly above its May forecast of 2.6%. On the financial side, the board pointed to wider won-dollar volatility, simultaneous increases in housing-related and other lending, a sharp rise in household debt, and a broader uptrend in home prices in the Seoul metropolitan area. Based on those factors, the board said it sees a need to keep monetary policy on a tightening path.
The Bank of Korea’s Monetary Policy Board said on the 28th that it will continue to maintain a rate-hike stance, taking both inflation and financial stability into account.
The statement came after the central bank’s first interest-rate increase in three and a half years. Explaining the backdrop for the move, the board said stronger economic growth has been driven by exports and investment, while inflation is expected to remain above target for a considerable period and financial stability risks are still present.
Board sees stronger growth and elevated inflation
The board said exports and investment are likely to continue posting relatively strong growth, supported by a solid semiconductor upcycle. It also said improving income conditions are expected to broaden the recovery in consumption, helping the economy maintain steady growth. This year’s economic growth rate is expected to come in significantly above the May forecast of 2.6%.
On prices, the board said inflation is expected to stay elevated for a considerable period.
Financial stability concerns remain in focus
The board also assessed that won-dollar volatility has widened, while housing-related loans and other loans have increased at the same time, pushing household debt up sharply. It added that the uptrend in home prices across the Seoul metropolitan area has expanded further.
Taking those factors together, the board said, "At present, it is judged necessary to continue maintaining a monetary policy tightening stance."
The report cited Jin10 as the source.
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