[Edaily Reporter Jang Young-eun ] Bank of Korea Governor Shin Hyun-song, following two consecutive benchmark interest rate hikes in July and August, indicated that he would weigh the timing and pace of further increases. He explained that, as the economy continues to show robust growth and inflation is projected to remain above the target level for a considerable period, it is necessary to respond to the spread of rising prices.

In his “Opening Remarks” at the National Assembly’s Finance, Economy, and Planning Committee hearing on the 12th, Governor Shin explained the rationale behind the consecutive benchmark rate hikes in July and August, stating, “It is important to prevent the spread of inflation through preemptive measures, and we must continue to pay close attention to financial stability risks.” With two consecutive months of hikes, the Bank of Korea raised the benchmark interest rate by a total of 0.5 percentage points, bringing it from 2.5% to 3.0% annually.

Regarding the future direction of monetary policy, he stated, “We plan to determine the timing and pace of additional hikes while closely monitoring inflation, economic trends, and financial stability.” Since he mentioned the timing and pace rather than the possibility of a hike itself, this is interpreted as leaving open the possibility of continuing the tightening stance.

Governor Shin also cited economic and inflation outlooks as the basis for this decision. He noted, “Despite instability in the Middle East, our economy has shown stronger-than-expected growth, driven by a robust semiconductor sector,” and predicted, “With strong growth in exports and investment continuing, and consumption gradually recovering due to improved income conditions, the economy is expected to maintain a steady growth trajectory.” Last August, the Bank of Korea projected this year’s growth rate at 3.3% and next year’s at 2.9%.

Regarding inflation, the Bank predicted, “As the pass-through of accumulated cost pressures continues and demand-side pressures gradually intensify, inflation is expected to remain above the target level for a considerable period.” The consumer price inflation rate jumped from the low 2% range in the first quarter of this year to around 3% following the war in the Middle East, reaching 3.1% in August. The Bank of Korea forecasts inflation rates of 2.7% and 2.3% for this year and next year, respectively. The Bank of Korea assesses that international oil prices (based on Dubai crude) have risen above $100 per barrel since September, increasing upside risks.

Concerns regarding financial stability were also raised. Governor Shin noted, “Concerns about financial imbalances stemming from rising housing prices in the Seoul metropolitan area and increasing household debt remain significant,” adding, “The potential for defaults in vulnerable sectors also lurks as a risk factor.” This indicates that while interest rate hikes will help curb inflation and financial imbalances, the Bank will also take into account the possibility that they could increase the repayment burden on vulnerable borrowers.

Taking into account the difficulties faced by vulnerable borrowers—such as small and medium-sized enterprises (SMEs) and small self-employed business owners—the Bank of Korea has gradually adjusted the interest rate on its Financial Intermediation Support Loans (FISL). While raising the benchmark interest rate in August, the Bank of Korea maintained the FISL rate at 1.25%.

External conditions are also a factor. In its report on business conditions, the Bank of Korea assessed that central banks in major economies—including the United States, the Eurozone, Japan, and Australia—have shifted to a rate-hiking stance due to upward pressure on inflation resulting from the prolonged crisis in the Middle East. The U.S. Federal Reserve (Fed) raised its policy rate to 3.75–4.00% in September, and the market views the likelihood of further hikes as high, based on factors such as the median value (4.1%) in the year-end dot plot.

Regarding the foreign exchange market, the Bank assessed that “despite external uncertainties, it has largely remained stable after a significant decline, supported by solid economic fundamentals.” The Bank of Korea has been operating the foreign exchange market 24 hours a day since July and plans to officially launch the Bank of Korea Won International Settlement Network, which began pilot operations in September, in January of next year. Regarding digital currency, the bank stated that it will proceed without a hitch with the second phase of “Project Hangang” live transactions and the pilot project for the execution of treasury payments.

The Bank of Korea’s next Monetary Policy Committee meeting is scheduled for the 22nd.