Bank of Korea Governor Rhee Chang-yong said that it’s premature to bet on a pivot in monetary policy even with price pressures easing, because inflation remains above the central bank’s goal.
(Bloomberg) — Bank of Korea Governor Rhee Chang-yong said that it’s premature to bet on a pivot in monetary policy even with price pressures easing, because inflation remains above the central bank’s goal.
Rhee spoke on a panel at the annual Asian Development Bank conference in Incheon, South Korea.
Consumer prices eased in April for the third straight month, rising at the slowest pace since February 2022. While price pressures are less pronounced now than last year, the central bank has said it needs to see a sustained decline in prices before making a decision on shifting monetary policy.
A higher interest rate environment is also likely to persist for longer than market expectations, Rhee said. Investors are currently betting that the central bank will cut interest rates as early as this year to support a lethargic economy, as inflation slows closer to the Bank of Korea’s target 2% level.
The Bank of Korea held interest rates for the second meeting in a row in April, underscoring risks to the economy including weaker export demand. Korean exports fell again in April though shipments posted the smallest decline since December, showing some early stabilization.
Rhee Wednesday flagged the risks of policy tightening, saying that further rate increases could result in capital outflows and additional pressure on the currency market. The Korean won is among the worst-performing currencies in Asia this year. Still, any potential impact from rate moves would be milder this year than in 2022, he said.
When asked about the fallout from the US and European regional bank crisis, Rhee said that the Federal Reserve and local policymakers acted appropriately to contain the fallout from Silicon Valley Bank’s collapse. He’s previously said that there were limited impacts from the banking situation in Korea.
–With assistance from Jaehyun Eom.
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