Outgoing BOK deputy governor says rate-hike stance needed with persistent inflation

Bank of Korea (BOK) Senior Deputy Gov. Ryoo Sang-dai said Tuesday that the central bank needs to maintain its rate-hike stance, citing persistent inflationary pressures stemming from the Middle East conflict and an improving economy.

“Inflation is expected to remain elevated due to demand-side pressures from the improving economy, on top of the pass-through of increased cost pressures stemming from the situation in the Middle East,” Ryoo said during a press conference. “We need to maintain our rate-hike stance.”

The BOK raised its benchmark interest rate by 0.25 percentage point to 2.75 percent on July 16. Korea has gone through four major rate-hike cycles since 2000, with the latest marking the fifth.

“This time, we are seeing an unprecedented expansion in the nominal GDP accompanied by a growing current account surplus, supported by an improvement in the terms of trade,” Ryoo said. “Consumption could increase significantly and investment could pick up quickly.”

The BOK believes the economic recovery could add to demand-side pressures and keep inflation elevated.

“Headline inflation is not rising as sharply as it did during the Russia-Ukraine war, but we are concerned that the current inflationary pressure could persist for longer,” Ryoo said.

“If inflation expectations fail to become well anchored near levels consistent with price stability and inflation remains above target for an extended period, as we have seen in the United States, inflation can be slower to come down even with monetary tightening, while output can also be adversely affected."

His remarks suggest that the BOK sees a need for a more pre-emptive monetary policy response, based on lessons from previous periods of high inflation.

Ryoo said economic growth and inflation data released since the July rate hike continue to point toward further tightening.

“The GDP in the second quarter shows that the economy continues to grow at an unusually strong pace, while inflation in July also remained sticky,” he said. “Inflationary pressures are likely to persist going forward, which will pose challenges for monetary policy.”

He stopped short of indicating when or by how much the BOK could raise rates again, saying the central bank would “look at the outlook for the growth and inflation paths.”

Ryoo also said the recent stabilization of the dollar-won exchange rate and increased stock market volatility are unlikely to be decisive factors in determining the direction of monetary policy.

“These developments may give Monetary Policy Board members a little more room, but traditionally they are not factors that carry that much weight for a central bank,” he said. “Ultimately, we will place greater weight on inflation and growth.”

The exchange rate also remains a concern despite recent stabilization.

“The 1,400 won range is still high and remains a significant upside risk to inflation,” Ryoo said. “Whether it really gives us enough room [when making monetary policy decisions] is something we need to consider.”

He also indirectly addressed growing financial imbalances amid a recent increase in debt-financed stock investment.

“Raising interest rates increases the cost of capital and tends to curb risk appetite, while lowering rates can have the opposite effect,” Ryoo said. “If interest rate policy is implemented in a way that complements government policies, it could also help ease financial imbalances.”

On the real estate market, Ryoo said monetary policy alone would not be sufficient.

“Macroprudential policy, housing policy and efforts to ease the concentration of population and economic activity in the Seoul metropolitan area also need to be pursued consistently,” he said.

Ryoo is set to step down on Aug. 20 after completing his three-year term as senior deputy governor.

He joined the BOK in 1986 and held a number of senior positions in departments including the Financial Markets Department, International Department and International Affairs Department. After leaving the central bank in 2021, he served as executive vice president of the Korea Housing Finance Corporation before returning to the BOK as senior deputy governor in August 2023.

“Starting with the Taeyoung Engineering & Construction project financing crisis in 2023, we went through a series of major crises — concerns over the unwinding of the yen carry trade and the martial law crisis in 2024, ‘Liberation Day’ tariffs in 2025 and the war in Iran this March — so I hardly noticed the years passing,” Ryoo said.

“I am confident that an even more capable senior deputy governor will succeed me."

BY OH HYO-JEONG, KIM WON [kim.jiye@joongang.co.kr]