"A Rate Hike Signal Could Be Sent at the May Meeting," Says Bank of Korea Deputy Governor Yoo Sangdae

Even Considering Government Policies, Inflationary Pressure Remains Significant

Semiconductor Cycle Likely to Continue for Now; Growth Concerns Easing

If the Current Trend Continues, a Rate Hike Signal Could Be Sent at the May Meeting

K-dot Plot Distribution Expected to Shift Upward Overall

Yoo Sangdae, Deputy Governor of the Bank of Korea, remarked that a signal for a policy rate hike could emerge at the Monetary Policy Board meeting scheduled for the 28th of this month. Considering that Yoo is one of the Monetary Policy Board members who decide interest rates, and that he made these comments on behalf of the Bank of Korea at a press conference during the Annual Meeting of the Asian Development Bank (ADB) in Samarkand, Uzbekistan, in place of the newly appointed Governor Shin Hyun Song, there is growing anticipation that the May meeting could deliver a significant signal regarding the timing of a rate increase.

Yoo Sangdae, Vice Governor of the Bank of Korea, is speaking during a press conference held in Samarkand, Uzbekistan, where the Annual Meeting of the Asian Development Bank (ADB) is taking place on the 3rd (local time). Bank of Korea

"A Rate Hike Signal Could Be Sent at the May Meeting"

At a press conference held on the 3rd (local time) in Samarkand, Uzbekistan, Deputy Governor Yoo stated, "Given the current situation, the growth rate of the Korean economy is not expected to fall significantly compared to the February projection (2.0%), and it has been confirmed that inflation will rise considerably more than the forecast (2.2%)." He added, "If this trend continues for about two more weeks, we could send a signal for a rate hike at the Monetary Policy Board meeting this month."

Although he repeatedly emphasized that future developments, such as the Iran war variable, would need to be monitored to determine whether they are significant enough to change the monetary policy cycle, he indicated that if conditions remain largely unchanged by the May meeting, a signal for a rate increase could be given. Depending on the strength of this signal, the market could anticipate the timing of a hike as early as the next rate-setting meeting in July, or possibly toward the end of the year.

There are also expectations that the distribution of the K-dot plot could generally shift upward. Last February, 16 out of 21 dots indicated maintaining the rate (2.50% per annum) over the next six months. Deputy Governor Yoo said, "After the February dot plot, we anticipated downward pressure on growth and upward pressure on inflation due to the Iran war. However, so far, the negative impact on inflation has been stronger, while growth has not been affected to the same extent," adding, "There is considerable room for the distribution to move higher compared to the February dot plot."

Even Considering Government Policies, Inflationary Pressure Remains 'Significant'

This judgment is influenced by the fact that price stability, the Bank of Korea’s top priority, is currently under threat. Deputy Governor Yoo explained that prices are facing substantial upward pressure, even when taking into account government stabilization measures such as the oil price ceiling.

He stated, "When an inflation outlook is released, policymakers respond accordingly. The inflation rate assuming no policy response will naturally differ from outcomes that include policy measures," adding, "I want to emphasize that (current inflation) is under considerable pressure, even with policy included." In other words, despite the government’s efforts to partially curb inflationary pressure, the underlying pressure itself remains very strong.

Korea's Growth Rate? "Remarkably Strong Under Current Conditions"

On the other hand, concerns over downward pressure on growth—which could make a rate hike more burdensome—have actually diminished compared to initial expectations at the onset of the Iran war. This is because Korea’s GDP in the first quarter of this year recorded a surprising surge, up 1.7% quarter-on-quarter and 3.6% year-on-year.

Deputy Governor Yoo remarked, "Given major negative factors like the Iran war, Korea’s growth rate is truly remarkable." He projected, "This year’s growth rate is likely to remain close to the previous forecast of 2.0%, as the semiconductor cycle strengthens and boosts exports, while government stimulus supports consumer sentiment." Recent concerns that the semiconductor cycle could soon turn downward have also eased. Yoo assessed, "Recent studies at home and abroad suggest that the current semiconductor cycle may last significantly longer than past cycles, which has alleviated concerns." He added, "Before the semiconductor cycle peaks, we need to use the time we have secured to find ways to support other areas of the economy."

Regarding the Organization for Economic Cooperation and Development (OECD) recently lowering Korea's potential growth rate for next year to 1.57%, Deputy Governor Yoo commented that this was 'excessive.' He stated, "The potential growth rate is extremely complex and difficult to estimate, but its trend is generally continuous. Unless there is an economic crisis, it does not suddenly drop. According to the Bank of Korea’s own estimates, the figure is just dipping below 2%. Personally, I do not believe the 1.57% figure for next year."

Yoo Sangdae, Deputy Governor of the Bank of Korea, is speaking at a press briefing held on the 3rd (local time) in Samarkand, Uzbekistan, where the annual meeting of the Asian Development Bank (ADB) is taking place. Bank of Korea.

KRW/USD at 1,470~1,480: Higher Than the Past, But...

Regarding the recent won-dollar exchange rate fluctuating in the 1,470–1,480 won range, Deputy Governor Yoo firmly acknowledged that it is indeed higher than in the past, considering Korea’s economic fundamentals. However, he added that it is not easy to judge whether the market-determined rate is right or wrong.

Deputy Governor Yoo explained, "From the standpoint of monitoring and managing the exchange rate, we watch for excessive demand concentration, shocks, or one-sided expectations when the rate is determined. If we judge that the market price is inappropriate in these aspects, we may intervene slightly or send a signal." He continued, "In the market, the 1,470–1,480 won level does not seem to be considered a major problem at this point." He further clarified that when the exchange rate is high, people may worry about a deterioration in Korea’s foreign currency liquidity or capital outflow, but those situations are not currently occurring.

Governor Shin's Vision for Won Internationalization: "It Must Be Used More Widely and Be Less Volatile"

Regarding Governor Shin’s initiative for the internationalization of the won, centered on strengthening offshore won settlements, Deputy Governor Yoo interpreted, "The emphasis is on ensuring the won is used more widely in international financial markets and, through an open environment, that the won does not become vulnerable to sharp fluctuations or capital outflows and inflows."

Deputy Governor Yoo added, "The concept of won internationalization can differ in everyone’s mind; it is not easy to define. Simply allowing the won to be used without regulation, as with advanced country currencies, does not in itself guarantee internationalization. If it is not used, that is the end of it; conversely, even with some regulations, if foreigners use the won extensively, internationalization is underway." He also noted, "It is not the case that we are pursuing won internationalization solely for inclusion in the MSCI Developed Markets Index."

This content was produced with the assistance of AI translation services.