Bank of Korea adopts 'cautious' monetary policy amid slowing growth and rising inflation

Rhee Chang-yong, Governor of the Bank of Korea, stated that it may be time to consider interest rate hikes rather than cuts amid rising inflationary pressures.

Rhee added that the central bank will closely monitor the economic situation until the Monetary Policy Committee meeting at the end of May. This assessment is based on the challenges facing the Korean economy amidst escalating tensions in the Middle East. Compared to the decision to freeze interest rates in April, growth is not expected to decline as sharply as initially feared, but inflation is increasingly likely to exceed forecasts.

This analysis takes into account the recovery in growth, driven by an export boom fueled by the semiconductor cycle and a rebound in consumer sentiment supported by government stimulus measures. It also considers that prices are facing significant upward pressure despite the government's inflation response policies.

When asked if there could be a signal from the May 28 Monetary Policy Committee meeting indicating the possibility of interest rate hikes within the year or after a specific point, Rhee replied that the possibility remains open. He reiterated that policy decisions would be made after further observation of the situation until the end of May, given the high level of uncertainty.

Rhee also pointed out the significant dependence of the Korean economy on semiconductors.