Monetary Policy Board Member Kim Jong-hwa: “The Impact of Middle East Tensions and Inflationary Pressures Will Be Crucial to Rate Hikes”

[Financial News] The BOK said on the 10th, “We will determine the timing and pace of additional policy-rate hikes while monitoring domestic and external conditions, including inflation that continues to rise for a considerable period and increasing household debt.”
In its Monetary and Credit Policy Report released that day, the BOK presented this position, forecasting that “solid growth driven by strong semiconductor exports and inflation remaining above the target level of 2.0% will continue for a considerable period” in relation to future policy-rate operations.
Kim Jong-hwa, a member of the Monetary Policy Board who led the preparation of the report, said, “Whether renewed tensions in the Middle East will cause cost pressures to rise again, and how much and how quickly strong semiconductor exports will affect domestic demand and demand-side inflationary pressures, will be the most important considerations” in deciding whether to raise the policy rate further.
Kim added, “We also need to closely examine the effects of the two most recent rate hikes,” emphasizing, “As some vulnerable sectors are expected to face greater burdens in this process, a response through a combination of macroeconomic policies is necessary.”
The BOK previously raised the policy rate twice consecutively in July and August.
From a macroeconomic perspective, the BOK expects solid growth to continue, supported by sustained strength in semiconductor-led exports and investment, as well as a broader recovery in consumption.
However, inflation is expected to remain above the target level of 2.0% for a considerable period, driven by the pass-through of accumulated cost pressures and stronger demand-side pressures. Consumer prices rose 3.1% as of August, well above the 2.0% target. As an “ultra-expansionary phase” of the economy takes hold, with nominal economic growth exceeding 20% in the first half of this year, domestic demand and demand-side pressures are expected to significantly fuel inflation.
Financial-market instability is another variable. The BOK analyzed that “continued attention is needed regarding financial-imbalance risks stemming from rising housing prices in the Seoul metropolitan area and increasing household debt.”
The Monetary and Credit Policy Report summarizes the BOK’s policy-rate decisions and their background, as well as the future direction of monetary and credit policy. Under the Bank of Korea Act, it must be submitted to the National Assembly every year.

[email protected] Jung Sang-gyun Reporter