BOK signals more rate hikes ahead amid rising inflation, strong growth

Korea's central bank said Wednesday it is necessary to maintain a monetary tightening mode as inflation pressure remains high and the country's economy is likely to continuously grow.

Earlier this month, the Bank of Korea (BOK) raised its benchmark rate by a quarter percentage point to 2.75 percent, the first rate hike in three and a half years. The move was aimed at combating escalating prices amid a volatile local currency and comes as robust exports are expected to sustain solid economic growth.

"Going forward, we judge that there is a need to maintain a rate hike trend and will decide on the rate level and the timing, taking into consideration the degree of inflation pressure, economic trend and financial stability," it said.

During the parliamentary committee session, BOK Gov. Shin Hyun-song said it is reasonable to curb core inflation by maintaining a tightening stance.

The BOK chief said there are upward inflation pressures on both the cost side and the demand side, adding that the timing and the degree of a potential rate hike will depend on data and economic conditions.

The central bank said the rate hike earlier this month was made as inflation is expected to exceed its target for a long period of time amid a pickup in the economy and risks to financial stability still remain in place.

The central bank said the country's economic growth will continue to show solid growth backed by strong exports and investment.

The Korean economy grew 0.6 percent in the second quarter from a quarter earlier, exceeding the BOK's May forecast of 0.2 percent growth, on robust exports, with 3 percent annual growth within reach.

The BOK also said inflation pressure will mount as a chip boom will boost the income effect and investment.

"Prices of services and industrial goods will accelerate amid uncertainty over global oil prices, and inflation will continue to top the target level," it said.

As to the local stock market, the BOK said downside risks will be limited given the stellar performance of key chipmakers, such as Samsung Electronics.

The local stock market has been roiled amid woes over whether chip demand will remain as strong as expected, with the country's benchmark index falling nearly 30 percent this month alone.

Yonhap