SEOUL, Oct. 23 (Yonhap) — The Governor of South Korea’s central bank, Rhee Chang-yong, stated Monday that the Bank of Korea (BOK) needs to maintain its restrictive monetary policy for a substantial period of time due to the increasing uncertainty of inflation.
During a parliamentary inspection, Rhee said the growth of consumer prices is anticipated to decelerate, yet remain above the target rate of 2 percent in light of the amplified volatility of global oil prices and currency rates following the Israel-Hamas conflict.
“Given these conditions, the uncertainties regarding the direction of consumer prices are high… and the bank judges that it should remain in a tightening mode aimed at restraining inflation for a considerable time,” Rhee told lawmakers.
This month, the BOK held its key interest rate steady at 3.5 percent for the sixth consecutive time in the face of a slowdown in growth and augmented uncertainties, such as the prolonged Ukraine-Russia war and rising household debts.
The rate freezes followed seven consecutive rate hikes from April 2022 to January 2023.
The central bank expressed that weak demand-side pressure, in addition to the stabilizing prices of farm goods, will contribute to the decrease of inflation, yet the conflict between Israel and Hamas may reduce the speed of the decline in inflation.
Data showed that inflation is moderating, although its rate increased last month because of higher oil prices.
Consumer prices rose 3.7 percent last month from a year earlier, the fastest in five months, stimulated by higher oil costs and increasing prices of some farm goods.
The BOK anticipates inflationary pressure to build up in the future, with inflation anticipated to stay above 3 percent towards the end of the year, far higher than its target rate of 2 percent.
For the full year, the central bank expects inflation to be 3.5 percent.
Bank of Korea Gov. Rhee Chang-yong speaks during a parliamentary inspection at the bank’s headquarters in Seoul, Oct. 23, 2023. (Yonhap)