Bank of Korea governor signals possible rate increase

The governor of the Bank of Korea said Thursday a rate hike may be needed at an appropriate time. The central bank will consider inflation above target, improved growth, and risks to financial stability, the governor told a National Assembly session.

The Monetary Policy Board is scheduled to decide on the key rate next Thursday. The governor added that inflation is expected to remain elevated for a considerable period because earlier cost increases continue to affect prices.

Growth and currency outlook The governor said the South Korean economy is expected to maintain solid growth supported by the semiconductor cycle and eased geopolitical tensions in the Middle East. The governor also noted a chance the Korean won may strengthen against the dollar.

The recent decline of the won came amid market expectations of changes in U.S. monetary policy and foreign investors rebalancing portfolios, the governor said. The country does not lack liquidity for measures such as currency swaps, the governor added.

Foreign investor activity The governor said the recent sell-off by foreign investors is expected to ease later this year. In a report to parliament, the central bank noted that the possibility of the stock market entering a downward trend remains limited.

The central bank is also preparing policy recommendations on structural issues including low births, aging demographics, balanced regional growth, and climate change, the governor said.