Governor Shin Hyun-song: Rate Freeze Expected Amid Middle East Unrest

The Bank of Korea's Monetary Policy Board decided on May 28 to maintain the benchmark interest rate at 2.50%. This marks the eighth consecutive freeze since July of last year, aligning with the expectations of economic experts.

Amidst rising international oil prices due to the volatile situation in the Middle East, domestic inflationary pressures are mounting. The Bank of Korea has kept its benchmark interest rate unchanged, opting to monitor the situation. Exports, led by semiconductors, have driven improvements in growth indicators. The real Gross Domestic Product (GDP) growth rate in the first quarter recorded 1.7%, signaling reduced need for economic stimulus through monetary easing and increased demand-side inflationary pressures.

The 1.7% real GDP growth rate in the first quarter, driven by strong exports, and the won-dollar exchange rate hovering above 1,500 won, have lent weight to maintaining a restrictive monetary policy stance. The sustained interest rate differential with the United States, coupled with the won-dollar rate fluctuating around 1,500 won, bolstered expectations for an interest rate freeze. The exchange rate, which had fallen to the 1,440 won range earlier this month, surged to the 1,520 won range during trading on the 22nd due to factors such as foreign investors selling off domestic stocks.

Housing prices also showed signs of instability. In the third week of May, Seoul apartment sales prices rose by 0.31% compared to the previous week, with the rate of increase expanding for three consecutive weeks.

The Bank of Korea is expected to revise its real GDP growth forecast for this year upward from the previous 2.0% to the mid-2% range. The projected surplus in the current account balance for this year is also expected to be higher than the initial forecast of $17 billion.

Bank of Korea Governor Shin Hyun-song was analyzed to be leaning towards a "hawkish" stance, maintaining the rate freeze while considering variables such as the Middle East situation. Changes in the distribution of the "dot plot," which shows the interest rate outlook of the seven Monetary Policy Board members for six months ahead, were also a point of interest. In the dot plot released in February, 16 out of a total of 21 dots remained at the current level (2.50%).