South Korea Central Bank Signals Continued Monetary Tightening to Combat Inflation

The Bank of Korea stated on Wednesday (29th) that it is necessary to maintain a monetary tightening posture, as inflationary pressures remain high and the national economy is expected to continue growing.

Earlier this month, the Bank of Korea raised its benchmark interest rate by 0.25 percentage points to 2.75%. This marks the first rate hike in three and a half years, aimed at curbing rising prices, stabilizing the volatile domestic currency exchange rate, and ensuring that strong exports continue to support economic growth.

Bank of Korea Governor Shin Hyun-song stated during a National Assembly committee session that current inflationary pressures stem from both cost-push and demand-pull factors, making it reasonable to maintain a tightening stance to control core inflation. He emphasized that the timing and magnitude of future rate hikes will depend on economic data, the degree of inflationary pressure, and financial stability conditions.

The central bank forecasts that inflation will remain above its target level for an extended period due to economic recovery and ongoing financial stability risks.

In terms of economic performance, South Korea has demonstrated stronger-than-expected resilience. The economy grew by 0.6% quarter-on-quarter in the second quarter, surpassing the central bank's initial forecast of 0.2%, significantly increasing the likelihood of achieving the full-year 3% growth target.

Robust exports and investment are the main growth drivers. In particular, the semiconductor industry's boom is expected to further fuel inflationary pressures through income and investment effects. Additionally, uncertainty in global oil prices is accelerating price increases in industrial goods and services.

Regarding stock market volatility, although the benchmark index fell nearly 30% this month due to market concerns over chip demand, the Bank of Korea believes the downside risks are relatively limited, supported by strong earnings from key chipmakers like Samsung Electronics. The central bank reiterated its commitment to continuously monitor economic trends to balance price stability with financial stability.