Yu Sang-dae, deputy governor of the Bank of Korea and Commissioner of the the Bank of Korea's monetary policy committee, said on the 11th that "what is worrisome is that wage increases in the IT institutional sector are growing into inflationary pressure," adding, "the magnitude of price increases will not be large, but they will be persistent." It means inflation will stay above the 2% target for an extended period. It is interpreted as suggesting that an additional base rate hike is needed.
Yu, a week before retiring as his term ends, stated accordingly at a press briefing at the Bank of Korea in Jung-gu, Seoul, saying, "What is pushing up prices is demand from an economic recovery rather than supply-side increases in international oil prices." The point is that the factor lifting prices has shifted from war to income gains driven by strong semiconductor exports. When income rises, consumption (demand) tends to expand, pushing up prices.
Yu said gross domestic product (GDP) in the second quarter posted a high level and core inflation in July is on the rise, hinting at the need for another rate hike. Last month, the Bank of Korea raised the rate by 0.25 percentage point to 2.75%. It marked a shift to tightening for the first time in 3 years and 6 months.
However, he was cautious about the timing of an additional hike. Yu said, "What is certain is that if there is no special shock, there is a high possibility of an additional hike," adding, "if we were to set the rate in August, we would have judged after looking at customs-cleared exports and credit card spending data."
Yu said the stock market and the exchange rate are not major considerations in rate decisions. Yu said, "Volatility in the stock market has increased and the exchange rate has somewhat stabilized, so I think the monetary policy committee members can have some leeway in making the rate decision," but added, "these two are not traditionally important factors. The point is whether economic growth will continue."
Meanwhile, Yu assessed that although the won-dollar exchange rate against the U.S. dollar has fallen to around 1,410 won per dollar, it is "a very high level." Yu said, "I do not expect the exchange rate to fall rapidly," adding, "if I had to indicate a direction, I would set it downward."
Yu, who graduated from the economics department at Seoul National University, joined the Bank of Korea in 1986. He later served as director general of international cooperation, overseeing the conclusion of currency swap agreements with Canada, Switzerland and the United States. From May 2018 for three years, he served as deputy governor for international finance and cooperation, and in July 2021 he moved to Korea Housing Finance Corporation (HF) as executive vice president. He then joined the Bank of Korea as a Monetary Policy Board member in August 2023.