BOK’s Shin Says Timing of Further Rate Hikes to Depend on Inflation, Growth

Semiconductor Strength Broadens Economic Growth; Consumption Stays Solid

Inflation Seen Remaining Above Target for an Extended Period

"Will Keep Monitoring Financial Imbalances and FX Volatility"

Shin Hyun-song, governor of the Bank of Korea, told the National Assembly’s Strategy and Finance Committee on July 29 that the Monetary Policy Board raised the benchmark interest rate to 2.75% from 2.5% in July. He said the central bank believes it needs to maintain a rate-hike stance going forward.

The timing and pace of any additional increases will be determined after a comprehensive review of inflation pressures, the trend in economic improvement and financial stability conditions, Shin said.

Shin said South Korea’s economy has recently been gaining growth momentum, supported by a semiconductor boom tied to the global spread of artificial intelligence. Exports and facility investment, led by chips, have continued to post strong gains, while consumption has remained solid. He said firm growth should continue if the semiconductor upturn persists and its effects spread to other industries.

On inflation, Shin struck a cautious note. He said price growth is expected to stay above the target level for a prolonged period as Middle East tensions keep open the possibility of swings in global oil prices, while accumulated cost increases, exchange-rate effects and stronger demand driven by improving income continue to add pressure.

Shin said financial and foreign-exchange markets also remain highly volatile because of external uncertainty. The won-dollar exchange rate rose sharply on Middle East uncertainty and broad dollar strength, then fell back into the mid-to-upper 1,400-won range from July as foreign-exchange supply and demand conditions improved.

Shin said the domestic financial system remains broadly stable, supported by real-economy growth and the resilience of financial institutions. "Still, elevated volatility in financial and foreign-exchange markets and the possibility of mounting financial imbalances stemming from rising home prices in the Seoul metropolitan area are major risk factors," he said.

Earlier in the day, before the policy briefing, Shin apologized for controversy during his confirmation hearing over his children’s nationality status. Responding to a request from People Power Party lawmaker Lim I-ja for a formal apology over allegations of a sham address registration after his eldest daughter failed to report the loss of her South Korean nationality, Shin said, "I apologize to the public that the confirmation process did not proceed smoothly." He added that his children's nationality issues had now been fully resolved.

Shim Seong-mi, Hankyung.com reporter smshim@hankyung.com