The Governor of the Bank of Korea, Shin Hyun-song, stated on Thursday that he sees a necessity to raise interest rates at a suitable juncture, highlighting that the central bank will weigh various factors including inflation persistently exceeding the target and other financial risks.
Shin Hyun-song made these remarks during a parliamentary hearing in South Korea, noting that the nation's economy is anticipated to maintain robust growth, supported by the semiconductor industry cycle and an easing of geopolitical tensions in the Middle East.
"I believe it is necessary to raise interest rates at an appropriate time," Shin Hyun-song said. "We need to consider factors such as inflation persistently staying above the target, improvements in economic growth, and prolonged financial stability risks."
Shin Hyun-song added that although risks related to the Middle East have moderated, the lagged effects from earlier cost increases are continuing, and inflation levels are expected to remain elevated for a considerable period.
Addressing foreign exchange volatility, Shin Hyun-song indicated that the South Korean won could strengthen against the US dollar.
He stated that the recent weakness of the won against the dollar is due to market expectations of a shift in US monetary policy and foreign investors rebalancing their portfolios in South Korea.
Shin Hyun-song further noted that South Korea does not face a liquidity shortage and can utilize measures such as currency swaps.
"(Currency swaps) are a method to provide liquidity when we lack it," he said. "Under current conditions, we are not experiencing a shortage of liquidity."
He added that the Bank of Korea is striving to offer policy recommendations from a neutral and longer-term perspective, addressing structural issues such as low birth rates, an aging population, balanced regional development, and climate change.
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