Commissioner Kim Jong-hwa of the Bank of Korea's Monetary Policy Board said on the 10th regarding the timing of a future base rate hike that "we need to closely examine the impact of the past two rate hikes." Kim's remarks were released through the "message from a board member" section of the monetary and credit policy report that the Bank of Korea released that day. It is in the same vein as Governor Shin Hyun-song's comments about a "gradual rate hike" through early next year, noting, "Because we raised rates twice in a row, we need to review the effects."
In the bond market, Kim's remarks are being interpreted as a message keeping in mind the possibility of a "rate hold in October." With two consecutive hikes in July and August lifting the rate to 3%, it is understood to mean that time is needed to check whether prices are turning downward. Cho Yong-gu, a researcher at Shinyoung Securities, said, "There are not many precedents of raising rates twice in a row during a period of currency tightening," adding, "They will take time to review the effects and assess external conditions."
Commissioner Kim said, "A solid growth trend and price increases exceeding the target level are expected to continue for a considerable period," adding, "It is necessary to determine the timing and pace of additional hikes while checking changes in internal and external conditions."
Commissioner Kim pointed to prices as the criterion for judging the timing of a future rate hike. "The most important considerations," he said, "are whether the recently rekindled military tensions in the Middle East will re-elevate expense pressures, and at what pace the export boom centered on the semiconductor institutional sector will spill over to domestic demand and demand-side price pressures."
Commissioner Kim explained that the reason for raising rates twice in a row was that price increases and economic growth "expanded more than expected." He added, "During the rate hike process, the burden on some vulnerable institutional sectors is expected to increase," and said, "A response through a combination of macroeconomic policies is necessary."
Meanwhile, Commissioner Kim emphasized communication between the market and the authorities, saying, "We must seek communication measures suited to our circumstances." The Bank of Korea introduced the "K-dot plot" in February, in which the seven Monetary Policy Board members, including the governor, present interest rate projections for six months ahead. Each of the seven members places three dots, producing a total of 21 projections. In the dot plot released last month, the largest number of dots (10) indicated 3.25% for February next year. Six pointed to 3.5%, and five to 3%.