BOK governor hints at another rate hike

Bank of Korea Gov. Rhee Chang-yong gives an address at the 72nd anniversary of the central bank in central Seoul on Friday. [BOK]

Bank of Korea Gov. Rhee Chang-yong hinted at another interest rate hike in July.

Higher interest rates may hurt in the short term, said Rhee in a commemorative address given at the central bank’s 72nd anniversary event held in central Seoul on Friday. “But not making timely adjustments may eventually cause greater damage if inflation continues to grow.”

The Bank of Korea started raising rates last year, when inflation was between 2 and 3 percent, earlier than other central banks. But other central banks have caught up.

The U.S. Fed raised the base interest rate by half a percentage point to the 0.75 and 1 percent range in May. Fed minutes indicated more rate hikes this year.

Korea’s consumer prices in May grew 5.4 percent from the same period last year, an increase from 4.8 percent in April. The May figure was the steepest increase in nearly 14 years.

“Maintaining the agility of policy operations and raising flexibility in accordance with changes to economic situations are necessary as there are uncertainties in growth and inflation,” Rhee said.

He added that there is a need to strengthen analysis on structural economic changes caused by an acceleration of the digital transformation, an aging society and tumultuous global politics.

Rhee also highlighted the need to create a less hierarchical corporate culture to raise efficiency at the central bank.

The Bank of Korea raised the base interest rate by 25 basis points to 1.75 percent in May. It was a unanimous decision by the monetary policy board. It was the second consecutive rate rise and the fifth in the current round of monetary tightening that began last August.

The next monetary policy board meeting is scheduled to take place on July 13.

BY JIN MIN-JI [jin.minji@joongang.co.kr]