The Bank of Korea (BOK) should keep raising rates until inflation subsides, but the central bank is unlikely to stop tightening before the Fed, Governor Lee Chang-yong said Saturday.
Lee also mentioned South Korea’s central bank would intervene to stabilize the won against the dollar if the bank determined that speculative forces were causing the currency to depreciate.
Mr. Lee’s remarks on the sidelines of a central bank meeting in Jackson Hole, Wyoming, said the BOK was ready to take the global fight against the steepest inflation in decades.
It dampened speculation that it could be one of the first major central banks to ease.
Asia, fourth-largest economy, is at the forefront of a global tightening.
The BOK was one of the first central banks to abandon pandemic-era monetary stimulus, raising its policy rate by 2 percentage points to his 2.5%.since August last year, Including South Korea, where the local currency depreciates.
“We are now independent from the government, but not from the Fed. If the Fed continues to raise rates, they will put downward pressure on our currency.”
South Korea inflation is largely the result of external issues such as energy prices, Lee said.
“If you ask me to stop…what if oil prices go up again?” he said. “It’s very difficult to pinpoint exactly when, given the importance of external shocks.” It’s too early.
BOK hiked interest rates by a quarter of a percentage point at its last meeting, stating that “as long as the inflation trajectory remains as currently assumed, an additional quarter percentage point hike is appropriate for the time being.” rice field.
At this point, “I can’t say we’re ahead,” Lee said. “As long as inflation stays high, say 4%,-5%, we will definitely continue to emphasize interest rate normalization,” he said.
South Korea’s inflation rate is expected to hover around 5% by the end of 2022 and then decline through 2023. The central bank, like many other banks, is targeting 2% inflation.
At Jackson Hole, central bankers used much the same language to describe their fight against inflation.
The main problem remains the same, inflation is well above the set target, but the sources of price pressure, i.e. the policy response, differ from country to country.
In a small, open economy like South Korea, the situation is particularly complicated due to spillover effects from policies set elsewhere.
Federal Reserve Chairman Jerome Powell said at the Jackson Hole meeting on Friday that the Fed would raise rates as much as needed to keep growth down and would keep raising rates “for a while” to keep inflation down.
His speech sparked a selloff in the US stock market, Lee said Monday’s attention will be on Wong.
The won, one of Asia’s worst performing currencies, has fallen about 11% against the dollar this year, prompting local authorities to step up scrutiny of the currency’s movements.
Mr. Lee so far sees the weaker dollar as part of the dollar’s growing global strength, rather than due to speculation or South Korea’s economic fundamentals.
We have a few days to go, but so far I think the exchange rate moves are very consistent with the major currencies.”
However, the Bank of Korea is prepared to intervene in the foreign exchange market if it finds speculative activity in won dollar trading.
The won has depreciated faster than neighboring Chinese and Japanese currencies, partly because the two countries have maintained accommodative monetary policies, he said.
Politicians, from President Yoon Suk-yeol to Finance Minister Choo Kyung-ho, stepped up their rhetoric in repeated attempts to slow the won’s decline over the past week.
Prime Minister Han Deok-soo said on Sunday that a weaker won would help the South Korean economy’s exports and current account balance, adding that he hoped monetary policy tightening would not have to be as severe or rapid as in the United States.
“This downward pressure from a stronger dollar is actually a bad factor for inflation as import prices are rising sharply.” It means there are no credit issues.”