South Korea’s central bank ready to turn hawkish as chip boom masks inflation pressure
Bank of Korea deputy chief Ryoo Sang-dai says it is time to consider rate hikes, with forward guidance set to turn hawkish at the May 28 meeting under new governor Shin Hyun-song.
Summary:
- Bank of Korea senior deputy governor Ryoo Sang-dai said forward guidance would become more hawkish at the next policy meeting and that it was time to consider rate hikes, per pool reports shared by the central bank
- Ryoo said economic growth was tracking at no lower than 2.0% since April while inflation was running above 2.2%, making further rate cuts inappropriate, per the same pool reports
- Ryoo said inflation pressure remained high even after government measures including nationwide fuel price caps, per the pool reports
- The Bank of Korea held rates steady last month in a wait-and-see approach as uncertainty from the Iran war warranted further monitoring of its impact on growth and inflation, per the report
- Korea's economy delivered its fastest quarterly growth in nearly six years last quarter, driven by a boom in chip exports, per the report
- Ryoo said the won hovering at 17-year lows around 1,470 to 1,480 per dollar was higher than historical levels but not viewed as problematic
- The BOK's next policy meeting is scheduled for May 28, the first under new governor Shin Hyun-song who took office on April 21
Main article:
The Bank of Korea is preparing to shift its monetary policy stance toward tightening, with senior deputy governor Ryoo Sang-dai saying it is time to consider interest rate hikes and signalling that forward guidance will turn hawkish at the central bank's next meeting later this month.
Ryoo, a member of the BOK's seven-seat monetary policy board, made the remarks at a press conference on the sidelines of the annual Asian Development Bank meeting in Samarkand, Uzbekistan. He said that since April, the economic picture had clarified sufficiently to justify a change in direction, with growth tracking at no lower than 2.0% and inflation running above 2.2%. In those circumstances, Ryoo said, the time for rate cuts had passed and the debate had moved on to the question of hikes.
The deputy governor said inflation pressure remained elevated even after a series of government interventions designed to cool consumer prices, including the introduction of nationwide fuel price caps. The persistence of price pressure despite those measures underlines how deeply the Iran war's impact on energy costs has embedded itself in the Korean inflation picture, echoing concerns raised by central bankers in the United States, Australia and Japan in recent weeks.
Korea's economic backdrop gives the BOK more room to consider tightening than some of its regional peers. The economy delivered its fastest quarterly growth in nearly six years last quarter, powered by a surge in chip exports that has outpaced most forecasts. Ryoo was relaxed about concerns over the economy's dependence on the semiconductor sector, arguing that the current upcycle was expected to run longer than previous ones and that Korea had a broader sectoral base than chip rival Taiwan.
The won's weakness adds a layer of urgency to the inflation debate. The currency has been hovering at 17-year lows against the dollar, in the range of 1,470 to 1,480 won, a level Ryoo acknowledged was elevated by historical standards, though he stopped short of describing it as a threat requiring immediate action. Currency weakness at those levels raises import costs directly, amplifying the inflationary pass-through from higher global energy prices caused by the Hormuz closure.
The May 28 policy meeting takes on added significance as it will be the first chaired by new governor Shin Hyun-song, who assumed office on April 21. Ryoo's hawkish signal ahead of that meeting sets a clear tone for Shin's debut, leaving markets to consider whether the new governor will validate the pivot his deputy has flagged or strike a more cautious opening note.
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A hawkish pivot from the Bank of Korea adds another significant Asian central bank to the list of institutions reconsidering their rate paths in response to Iran war inflation, joining the BOJ, RBA and Fed in signalling that the era of easy money is under renewed pressure.
The won's position at 17-year lows around 1,470 to 1,480 per dollar is a compounding factor: currency weakness raises import costs in an economy already absorbing elevated energy prices from the Hormuz closure, creating a self-reinforcing inflation dynamic that limits the BOK's ability to stay on hold. Korea's chip export boom provides a degree of growth insulation, but Ryoo's explicit signal that forward guidance will turn hawkish at the May 28 meeting gives markets little room to price a dovish outcome under incoming governor Shin.
This article was written by Eamonn Sheridan at investinglive.com.提供 MainLink：Investinglive RSS Breaking News Feed
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