Seoul, South Korea – Bank of Korea Governor Shin Hyun-sung reaffirmed the bank’s intention to raise interest rates amid persistent inflationary pressures. He also stressed that inflation will remain high for an extended period regardless of political developments in the Middle East. This came during a press conference held by the governor on Wednesday to review the bank’s price stability policy.
Inflation persists despite the peace agreement
Governor Shen explained that the recent agreement to end the trade war between the United States and Iran has not altered the fundamental economic outlook. This outlook was the conclusion reached by the Monetary Policy Committee in May.
Despite the significant drop in global oil prices following the agreement, Shen cautioned against being swayed by short-term market fluctuations. He also advocated for a medium- to long-term perspective.
He added, “It is unlikely that crude oil production levels and supply chains will return to pre-war levels in the near term, and this process is expected to take considerable time.”
Wage and demand pressures
The governor revealed a rise in inflationary pressures, emphasizing that they are no longer limited to the cost side (energy prices) but have extended to both wages and demand.
He noted that the improved performance of the domestic economy, particularly semiconductor exports, has strengthened the upward momentum in prices. He also expressed concern that rising wages could exacerbate these upward pressures. The governor described this development as a “cascading secondary effect” that must be closely monitored in the medium and long term.
Excluding “the big step”
In a notable development, Governor Shen put an end to speculation about a possible “big move” (a 50-basis-point interest rate hike in one go). He emphasized that current market conditions are fundamentally different from the period that prompted such a proposal. He explained, “We are not swayed by market fluctuations; we base our decisions on the fundamental trends of the economy.”
Protecting the most vulnerable groups
The governor concluded his remarks by emphasizing the Bank of Korea’s full awareness of the economic burden weighing on the public, particularly low-income households affected by the rising cost of living exceeding official inflation rates. Shin also pledged to closely monitor prices and take proactive measures to ensure price stability at target levels. He stressed that the bank would fulfill its responsibility to alleviate the economic burden on citizens during these challenging times.
