Lee Su-hyeong, a Commissioner of the Bank of Korea's monetary policy committee, said on the 17th that "uncertainty has grown due to the recent U.S. and Israeli airstrikes on Iran," adding that prices are more likely to rise and growth to slow.
The Commissioner stated accordingly at a press briefing held at the Bank of Korea (BOK) headquarters in Jung-gu, Seoul, on the morning of the same day.
The Commissioner said, "In the monetary policy statement in February, we projected the average Brent price this year at $64, but recent oil prices are much higher than that, increasing the upside risk to inflation," and added, "On the growth side, the rise in materials and supplies prices is dampening demand from economic agents that need to use them, so the downside risk has grown compared with before."
When oil prices rise, higher import prices for raw materials can spur producer prices. Producer prices are usually reflected in consumer prices with a time lag of three to six months. When prices rise, consumer spending by economic agents contracts, negatively affecting domestic demand.
The Commissioner also said the future path of the base rate could change. Earlier, the Monetary Policy Board held a meeting on the direction of currency policy on the 26th of last month and unanimously kept the base rate at 2.5% a year. It also presented a median base rate of 2.5% in the dot plot showing Monetary Policy Board members' projections for the rate level six months ahead.
The Commissioner said, "In February, we considered prices and the current account without the Iran war situation being reflected," adding, "But now the risks to prices and growth have increased, so there may be differences from February." The Commissioner added, "We will need to monitor economic trends until the next meeting and decide the direction of currency policy."
However, the Commissioner projected that the economic situation will not deteriorate significantly. The Commissioner said, "There is risk due to the Iran situation, but the market's view is that Korea's current account surplus trend will not be greatly affected, following the global semiconductor supercycle," adding, "Personally, I do not think this stage is a situation to be very worried about."
In its revised economic outlook released last month, the Bank of Korea (BOK) projected growth of 2% this year and 1.8% next year. It raised this year's growth forecast by 0.2 percentage points and lowered next year's by 0.1 percentage points from the previous projections.