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BOK chief says to keep restrictive policy for considerable time

Oct. 23, 2023 - 10:59 By Yonhap
Bank of Korea Gov. Rhee Chang-yong speaks during a parliamentary inspection at the bank's headquarters in Seoul on Monday. (Yonhap)

The chief of South Korea's central bank said Monday that the bank needs to maintain its restrictive monetary policy for a considerable time as uncertainties over inflation are rising.

During a parliamentary inspection, Bank of Korea Gov. Rhee Chang-yong said consumer price growth is expected to slow, but remain above the target rate of 2 percent amid increased volatility in global oil prices and currency rates following the Israel-Hamas conflict.

"Given these situations, uncertainties over the direction of consumer prices are high ... and the bank judges that it should stay in a tightening mode aimed at curbing inflation for a considerable time," Rhee told lawmakers.

This month, South Korea's central bank held its key interest rate steady at 3.5 percent for the sixth straight time amid a slowdown in growth and heightened uncertainties, such as the prolonged Ukraine-Russia war and rising household debts.

The rate freezes came after the BOK delivered seven consecutive rate hikes from April 2022 to January 2023.

The central bank said weak demand-side pressure, along with the stabilizing prices of farm goods, will help inflation slow down, but the conflict between Israel and Hamas may reduce the pace of the slowdown in inflation.

Data showed that inflation is moderating, although its pace gathered ground last month due to higher oil prices.

Consumer prices increased 3.7 percent last month from a year earlier, the fastest in five months, driven by higher oil costs and rising prices of some farm goods.

The BOK predicts inflationary pressure to build up down the road, with inflation expected to stay over 3 percent around 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. (Yonhap)