Korean central banker says a lot has changed in recent weeks

Bank of Korea Gov. Rhee Chang-yong speaks at a press conference held in central Seoul on Tuesday. [BANK OF KOREA]

Korea's central banker is taking note of the deteriorating world economy.

"It has only been four weeks since the last monetary policy board meeting, but a lot of changes in prices have been observed," Bank of Korea Gov. Rhee Chang-yong said during his regular twice-yearly press conference.

He added that inflation is a focus and rates are still low, and noted that a weakening won doesn't necessarily call for intervention.

"I believe it is desirable to operate monetary policy focused on inflation until the trend changes at a time like this when inflation continuously increases," he said.

The central bank projects inflation to be higher in the second half than in the first half due to a continued rise in crude oil and wheat prices, it said on Tuesday.

It forecasts inflation in June to be higher than the 5.4 percent in May, which was the highest in more than 13 years. The bank cited a quick recovery in service consumption from the lifting of social distancing measures and upward pressure on prices from overseas supply disruptions.

Inflation in the United States hit 8.6 percent in May, the highest since December 1981.

The Bank of Korea projects inflation to peak in the second half of the year, though uncertainties like the war in Ukraine remain at this point.

"The annual consumer price increase is projected to considerably exceed 4 percent this year," it said in a statement. Over the past two decades, annual inflation broke 4 percent in 2008 (4.7 percent) and in 2011 (4.0 percent).

"The recent inflation broke the 4.7 percent peak in 2011 to near the 5.9 percent peak seen in July 2008," said the bank discussing monthly figures.

Rhee said the current 1.75 percent base rate is "lower than the neutral rate" the board is targeting and indicated further increases in the base interest rate will be decided once the neutral rate has been reached.

Rhee added financial volatility has grown as the timing of the inflation peak-out period in the United States has been delayed from the previous forecast.

Rhee remained vague about his stance on the falling won.

"There's no theory that says there's a desirable level of a currency rate," said Rhee.

The won hit 1293.6 per dollar on Tuesday, down more than 10 percent on year. The last time won was this low, excluding the past week, was following the start of the pandemic in March 2020.

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