BOK Governor Shin Hyun-song Signals Interest Rate Hike for Price Stability

Bank of Korea Governor Shin Hyun-song announced on July 12 that it is necessary to raise the benchmark interest rate in a timely manner for price stability. This suggests that the central bank's efforts to curb recent high inflation will continue. Governor Shin stated that based on data received since the May monetary policy decision meeting, monetary policy decisions are pointing 'clearly in one direction.' He reiterated the need to raise rates 'without delay' for price stability.

Addressing concerns that monetary tightening could disproportionately burden low-income households, Governor Shin countered that preemptive price stabilization is the better way to protect them from rising costs. While acknowledging that interest rate hikes could increase debt repayment burdens for businesses and households, he said that selective support for such difficulties should be more effectively provided through fiscal policy.

Governor Shin assessed that the situation regarding prices, growth, and financial stability has not changed significantly since the May monetary policy committee meeting. He cited the first quarter's nominal GDP growth of 10.5%, the entry of consumer price inflation into the 3% range in May, and the rise in core and everyday living costs as supporting evidence. He explained that consumer price increases are driven not only by supply-side factors but also by expanding domestic demand. He added that even if consumer prices show some stabilization going forward, inflation is likely to remain above the target level for a considerable period.

Regarding claims that recent economic growth is 'K-shaped,' with growth particularly benefiting only a few companies, Governor Shin expressed a dissenting view. He argued that this view contradicts robust domestic demand recovery and the supporting growth outlook. He predicted that domestic demand would also recover and continue a steady growth trend, driven by factors such as the booming semiconductor industry, increased tax revenue from nominal GDP growth, income improvements, and expanded investment.

Governor Shin further elaborated on concerns about interest rate hikes exacerbating the burden on low-income households, explaining that the burden of price increases is greater for this demographic, and therefore, preemptive price stabilization efforts are the way to prevent the burden from worsening. He added that selective fiscal support would be more effective in addressing increased debt repayment burdens.