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Bloomberg
The Bank of Korea (BOK) said it will keep considering further interest-rate increases as inflationary pressures are expected to remain elevated for an extended period.
The central bank said in a report to parliament on Tuesday that monetary policy needs to remain tight with a focus on reining in consumer prices. Even though inflation is likely to gradually decelerate, it will hover above the target of 2% through this year, the BOK said.
The assessment shows the central bank refuses to bow to the market’s view that the tightening cycle has ended. The BOK meets on Thursday for what most economists expect will be a pause at 3.5%
following 18 months of rate hikes.
Two board members disagreed with last month’s quarter-point increase, suggesting the bank will hold this time. Governor Rhee Chang-yong said after the previous decision that it was premature to view 3.5% as the terminal rate.
Yet he has also said policymakers should consider the impact on the economy and financial stability of their efforts to tame inflation.
The mixed signals come as the Federal Reserve debates its pace of tightening as US inflation comes down at a slower rate than anticipated.
The won has weakened in recent weeks in a possible sign of market expectations that US policymakers will turn more hawkish and reinforce dollar strength. The yield on the South Korea’s three-year bond rose to a five-week high on
February 20.
Speaking to lawmakers at the National Assembly on Tuesday, Rhee said that it’s difficult to predict how fast inflation will ease, and that the central bank will work with the government to adequately respond to unexpected market uneasiness.
A correction in housing prices is likely to continue as markets price in previous rate hikes, Rhee said. He also added that a rise in public fees such as electricity, water and gas bills is necessary to prevent side effects.