Bank of Korea weighs further rate hikes as inflation persists

The Bank of Korea (BOK) said Thursday it will decide the timing and pace of further rate hikes while reviewing domestic and external conditions, as accelerating inflation and solid economic growth are expected to continue for some time.

"Given that robust growth and inflation exceeding the target level are expected to continue for a considerable period, it is necessary to determine the timing and pace of further rate hikes while monitoring changes in domestic and external conditions," the BOK said in its monetary policy report.

The central bank lifted the benchmark interest rate to 3 percent over two straight meetings in July and August, marking the first back-to-back rate hikes since January 2023, when it raised the rate at seven consecutive meetings starting in April 2022.

At a press conference after last month's rate-setting meeting, the BOK stressed the need for "pre-emptive" action to prevent inflationary pressures from accelerating further, as consumer prices are expected to remain above the 2 percent target due to export-driven economic growth and investment contributing to higher household incomes.

The central bank again emphasized the importance of managing inflationary pressures amid lingering uncertainty stemming from monthslong conflicts in the Middle East, while Asia's fourth-largest economy continues to see strong exports driven by increased shipments of semiconductors amid a boom in AI infrastructure.

"The most important factors to consider are whether the recent resurgence of military tensions in the Middle East will cause cost pressures to rise again, and to what extent and at what pace the strong export performance, led by the semiconductor sector, will spill over into domestic demand and demand-side inflationary pressures," the BOK said.

It said it will also keep a close eye on financial risks related to rising household debt and the foreign exchange market stemming from a possible change in U.S. monetary policy.

Yonhap