BOK governor says rate hike is necessary and sees room for the won to strengthen
Bank of Korea Governor Shin Hyun-song said at a 7month 9day report to the National Assembly that inflation was above the target and that a base-rate hike would be necessary at an appropriate time. He also raised the possibility of the won shifting to a stronger trend due to accumulated current-account surpluses. In response to a question about a “big step,” he said it was a general remark.
Bank of Korea Governor Shin Hyun-song 7month 9day said in a work report to the National Assembly that inflation was above the target and that a base-rate hike was necessary at an appropriate time. The remarks stated that the base rate needed to be adjusted based on inflation trends.
The governor pointed out that current-account surpluses had accumulated substantially and said there was considerable room for the won to return to a stronger trend. The remarks suggested that accumulated external balances could affect the exchange rate.
A Bank of Korea announcement also presented a forecast that the inflation rate could exceed the target. Based on this forecast, the need to adjust the base rate was mentioned repeatedly.
In response to a question during parliamentary questioning about the possibility of “one big step,” the governor said that the remark he had made was an explanation of the general underlying basis. He did not mention a specific magnitude or timing.
The remarks that day could be interpreted as signaling policy intentions and a warning to the financial and foreign exchange markets. However, the specific timing or magnitude of a rate increase was not disclosed in the statement or the question-and-answer session.
The market is expected to watch the central bank’s follow-up explanation and the results of the Monetary Policy Board meeting. Market participants should continue to monitor inflation and current account data.