BOK Governor: "Focus on Price Stability... Raise Interest Rates Without Delay"

Bank of Korea Governor Shin Hyun-song said on Friday that "it is necessary to raise interest rates without delay, with a focus on price stability."

Governor Shin made the remarks on Friday morning during a ceremony marking the 76th anniversary of the BOK's founding, held at the BOK annex in Jung-gu, Seoul. "Growth, inflation, and financial stability conditions are pointing monetary policy relatively clearly in one direction," he said.

"Data received since the May monetary policy decision meeting also confirm this," he said, adding, "While monetary policy is bound to face trade-offs among policy variables, such trade-offs are not significant at present."

Regarding inflation as a consideration for monetary policy, Governor Shin pointed out, "Living-cost inflation, which is closely related to perceived prices, is rising faster than consumer prices and could affect households' inflation expectations."

He projected, "While the government's price stabilization measures will act to ease upward pressure, the inflation rate is expected to exceed the target level for a considerable period as the ripple effects of supply shocks expand and demand-side price pressures also grow."

"Since the burden of rising prices is relatively greater on low-income households, preemptive efforts to stabilize prices are also a way to prevent their burden from worsening," he emphasized.

He expressed concern that raising interest rates could increase the debt-servicing burden on businesses and households, noting, "Targeted support for those facing such difficulties would be more effective through fiscal policy."

Regarding housing prices, Governor Shin assessed, "In the metropolitan housing market, high growth in sales and rental prices has continued, and expectations of further increases have risen again."

"In the medium to long term, efforts must continue to ease concentration in the metropolitan area and shift funds to productive sectors," he said.

Regarding the recent trend of "debt-driven investing" (investing with borrowed money) amid rising stock prices, he pointed out, "It is important to note that excessive leveraged investing not only heavily impacts personal profits and losses during price corrections but can also expand market volatility."

Governor Shin expressed expectations for a reduction in foreign exchange market volatility.

"The market expects that the large current account surplus will act as a factor increasing demand for the won through corporate tax payments and expanded domestic investment, gradually stabilizing the won-dollar exchange rate in the future," he mentioned.

"If this happens, it will once again confirm that there are factors of fundamental value in addition to the trend of the exchange rate," he said.

This is interpreted to mean that once supply-demand imbalances ease, the value of the won will eventually find its equilibrium point.

Governor Shin drew attention by emphasizing "fundamental value" instead of reading from his prepared script, which originally stated, "If high volatility in the exchange rate persists, influenced by developments in the Middle East, it could add to inflation pressure through rising import prices."

"We will implement policies in cooperation with relevant agencies to improve foreign investors' access to the won market by opening the foreign exchange market 24 hours a day and establishing an offshore won settlement system, while absorbing demand for offshore non-deliverable forward (NDF) transactions into the domestic market," Governor Shin said.

Regarding the economic outlook, Governor Shin said, "While the semiconductor boom continues, the economy will sustain solid growth as domestic demand also recovers through increased tax revenue from nominal gross domestic product (GDP) growth, income improvements, and expanded investment."

However, he added, "It is necessary to note that the gap between sectors remains as the reliance on the information technology (IT) sector for growth is high."

In that vein, he said, "We must continue efforts to alleviate polarization among regions, generations, and social classes."

"It is important to expand investment to raise future growth potential based on secured fiscal capacity and corporate financial conditions," Governor Shin emphasized.

Citing the foreign proverb "Fix the roof while the sun is shining," he said, "Now, when the global economic environment is rapidly changing due to the development of artificial intelligence (AI) technology, is the time to prepare for the future rather than being complacent with the current situation."

(Photo: Yonhap News)
※ Please note: This article was translated by AI and may contain errors.