Bank of Korea to prioritize reducing inflation next year

Bank of Korea Gov. Rhee Chang-yong speaks at a press conference held to discuss inflation in central Seoul on Dec. 20. [JOINT PRESS CORPS]

Korea’s central bank will prioritize reducing inflation in its monetary policy operation for next year, indicating the increases of interest rates may continue.

In a Monetary Policy for 2023 report released Friday, the Bank of Korea (BOK) noted that reining in surging prices will remain its main focus.

“The Bank of Korea will continue to conduct its monetary policy with a focus on price stability so that consumer price inflation will move towards the target level (2.0%),” it said in the report.

“The bank reflected the projection that while the Korean economy is forecast to grow at a slower pace, the upward trend of consumer prices will be well above the target level next year,” it read.

Inflation cooled off in recent months — standing at 5 percent in November, the slowest increase since April, but it remains well above the target range.

The Finance Ministry predicted that the average consumer price growth will be 5.1 percent this year and 3.5 percent next year, in line with the BOK’s projection.

If this year’s forecast proves true, it will be the highest since the 7.5 percent recorded in 1998.

BOK Governor Rhee Chang-yong has made it clear that it is too early to discuss rate cuts at this point and that the Monetary Policy Board will need more clear evidence of declining inflation in the mid-to-long term before they start discussing a cut.

The Bank of Korea raised the base interest rate to 3.25 percent in November, up from 0.50 percent in July last year.

The U.S. Fed slowed the rate increase earlier this month to half a percentage point after raising it by three-quarters of a point four consecutive times through November. The federal funds rate now ranges between 4.25 to 4.50 percent.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]