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BOK chief says don't expect a rate cut 'any time soon'

April 14, 2023 - 16:38 By Im Eun-byel
Bank of Korea Gov. Rhee Chang-yong speaks at a press briefing shortly after a rate-setting meeting, Thursday. (Yonhap)

Bank of Korea Gov. Rhee Chang-yong underlined that is “too early” to discuss a rate cut, issuing a warning on growing expectations that the central bank may start to cut its base rate soon.

With the BOK deciding to hold the rate at 3.5 percent for a second consecutive time on Tuesday, market expectations have grown that the rate hike cycle has ended and a pivot on the BOK’s rate stance could come within the year.

Rhee, however, drew a line, saying it is premature to discuss a rate cut.

"A rate cut will be discussed after seeing the inflation rate fall down to 3 percent. It is too early to discuss yet," Rhee said to press during his visit to Washington on Thursday. Rhee is on a visit to attend the G-20 Finance Ministers and Central Bank Governors meeting and World Bank Group-International Monetary Fund spring meeting.

The consumer prices index, an important barometer of inflation, was 4.2 percent in March, marking a fall from 4.8 percent in February.

"It is uncertain that the inflation will fall to 3 percent in the second half of this year. For a rate cut, there needs to be a more definite proof (that inflation will wane),” he said. "Do not expect a rate cut yet."

Rhee also shared his concerns on financial stability with recent bank runs last month involving the Silicon Bank Valley and Credit Suisse collapses.

"Many central banks are working on how to change the deposit protection measures and related regulations after experiencing the bank collapses,” Rhee said.

Rhee stressed related measures have to be improved as customers can withdraw their deposits from a bank at a fast pace via internet banking.

"Fed Chair Jerome Powell said he was most surprised with the speed in the SVB crisis. (The speed) of deposit withdrawal is surprising. Most central bank chiefs are saying the same thing," he said, referring to his talk with US Federal Reserve Chair Powell a day earlier.

“If a similar crisis like the SVB collapse happens in Korea, the speed of deposit withdrawal could be faster because internet banking is very developed here, making it so easy to move $10,000 or so,” he said.

"More than half of central bank chiefs are thinking about the speed and limit of deposit protection measures and how to work out fake news issues as well."