Bank of Korea Governor Rhee Chang-yong has stated that interest rates need to be raised without delay, delivering his strongest signal yet that policymakers are preparing to tighten monetary policy as inflation and financial stability risks continue to mount.
In a speech on Friday marking the central bank's 76th anniversary, Rhee indicated that recent economic data further supports the case for increasing borrowing costs, noting that growth, inflation, and financial stability concerns all point towards the same policy direction.
"While monetary policy often faces conflicts between policy objectives, such trade-offs are not significant at present," Rhee said. "Therefore, it is necessary to prioritize price stability and raise interest rates in a timely manner."
These remarks reinforce the hawkish shift in stance that emerged at the Bank of Korea's May meeting. Although policymakers held the rate steady at that time, two monetary policy board members dissented, voting in favor of a hike. The board's dot plot also indicated that borrowing costs are expected to rise in the coming months. The central bank's next meeting is scheduled for July 16.
Rhee noted that inflation risks are intensifying as the Middle East conflict enters its fourth month, with the latest data showing consumer prices rose in May at their fastest pace in two years. He warned that if energy supply disruptions persist, high inflation expectations and potential corporate price hikes could exert greater pressure.
He also pointed to growing financial stability concerns, citing rising apartment prices in the Seoul metropolitan area, increasing expectations for further appreciation, higher leverage in stock investments, and a renewed rise in household debt.
At the same time, he expressed optimism about the South Korean economy, stating that the AI-driven semiconductor boom is supporting exports, investment, and domestic demand.
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