Bank of Korea governor calls for timely interest rate hike

Bank of Korea Governor Shin Hyun-song has once again stressed the necessity of raising interest rates, stating that the current economic conditions clearly point towards such a move. Speaking at the bank's 76th-anniversary ceremony, Shin emphasized that the focus must remain on price stability, a crucial step to alleviate the burden on low-income households disproportionately affected by inflation. He acknowledged that rate hikes would increase debt repayment burdens for businesses and households, suggesting that fiscal policy is better suited for targeted support in these areas.

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There is a need to raise interest rates without delay, focusing on price stability.

Shin's remarks come as financial markets widely expect the central bank to begin raising its benchmark interest rate from the current 2.50% at the next Monetary Policy Committee meeting, scheduled for July 16. The governor's consistent calls for a rate increase signal a potential shift in monetary policy aimed at curbing inflationary pressures. He also touched upon the foreign exchange market, highlighting plans to enhance accessibility for foreign investors and absorb offshore won trading demand through measures like a 24-hour trading system and an offshore non-deliverable forward (NDF) system.

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Proactive price stability efforts are also a way to prevent the burden on low-income households from worsening.

Looking at the broader economy, Shin projected a robust growth trajectory, supported by a strong semiconductor sector, increased tax revenue from nominal GDP growth, and recovering domestic demand. However, he cautioned about the persistent gap between sectors and the economy's significant reliance on the IT industry. He also pointed to external factors, such as the prolonged Middle East conflict, as potential drivers of further price increases, exacerbated by rising household inflation expectations and the possibility of corporate price hikes. Shin concluded by urging proactive preparation for a rapidly changing global economic landscape, driven by advancements in artificial intelligence, likening it to repairing a roof while the sun shines.

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It is precisely now, as global economic conditions are rapidly changing due to AI technological advancements, that we must prepare for the future without being complacent about the current situation.