Key Takeaways
- • The Bank of Korea's Monetary Policy Committee held its benchmark rate at 3.00% per annum on October 22, ending two consecutive hikes in July and August.
- • Governor Shin Hyun-song said inflation remains strong and the current tight policy stance should continue until prices converge to the target level.
- • The won's weakness was acknowledged, with the exchange rate moving from about 1,380 won in August to 1,325 won at the time of the press conference.
- • Shin said semiconductor prices remain solid, DRAM prices are rising, and recent stock market adjustments are affecting consumer sentiment and the real economy.
- • The committee decided to assess the ripple effects of the two preemptive hikes before taking further action, citing Middle East uncertainty and major-economy policy risks.
Summary
The Bank of Korea's Monetary Policy Committee stopped raising its benchmark interest rate on October 22, holding it at 3.00% per annum after two consecutive increases in July and August, according to the central bank's press conference held at its annex. Governor Shin Hyun-song said the decision reflected the policy capacity the bank believed it had secured through the earlier hikes, and that the bank intends to respond to domestic conditions rather than to market pressure.
Shin said inflation remains strong, with prices rising around 3%, and that the tightening stance should continue. He stated that the bank would keep responding until it is confident that inflation has converged to a stable level around its target. He noted that growth and inflation were stronger than in August, and that the domestic economy continues to expand, driven mainly by exports and investment.
On the currency, Shin acknowledged that the won remains weak, though volatility has eased. He said the exchange rate, which was around 1,380 won in August, had fallen to about 1,325 won, describing the earlier high level in early summer as an abnormal episode that has since been reversed. He also said that the central bank was monitoring financial stability risks.
Shin linked the freeze to the need to examine the effects of the previous two preemptive hikes, which he said had helped ease housing price increases. He cited uncertainty from the Middle East crisis and monetary and fiscal policy in major economies as reasons to watch internal and external risk factors while holding the rate. He added that the decision reflected broad consensus among all committee members.
On equities, Shin said recent large stock price adjustments were a concern because share price movements affect consumer sentiment and the real economy. He said semiconductor prices themselves remain solid, with DRAM prices rising and no sign of decline. He also pointed to market volatility linked to the Federal Reserve's September rate decision as a factor, though he said Korea's financial markets had been relatively stable.
Shin said inflation remains strong, with prices rising around 3%, and that the tightening stance should continue. He stated that the bank would keep responding until it is confident that inflation has converged to a stable level around its target. He noted that growth and inflation were stronger than in August, and that the domestic economy continues to expand, driven mainly by exports and investment.
On the currency, Shin acknowledged that the won remains weak, though volatility has eased. He said the exchange rate, which was around 1,380 won in August, had fallen to about 1,325 won, describing the earlier high level in early summer as an abnormal episode that has since been reversed. He also said that the central bank was monitoring financial stability risks.
Shin linked the freeze to the need to examine the effects of the previous two preemptive hikes, which he said had helped ease housing price increases. He cited uncertainty from the Middle East crisis and monetary and fiscal policy in major economies as reasons to watch internal and external risk factors while holding the rate. He added that the decision reflected broad consensus among all committee members.
On equities, Shin said recent large stock price adjustments were a concern because share price movements affect consumer sentiment and the real economy. He said semiconductor prices themselves remain solid, with DRAM prices rising and no sign of decline. He also pointed to market volatility linked to the Federal Reserve's September rate decision as a factor, though he said Korea's financial markets had been relatively stable.
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