Inflation remains a priority for Bank of Korea governor

Bank of Korea Gov. Rhee Chang-yong speaks at the National Assembly in Yeouido, western Seoul, on Tuesday. [NEWS1]

Monetary policy needs to focus on stabilizing inflation this year, while policy needs to be introduced designed to respond to economic uncertainties, according to the Bank of Korea Tuesday.

“It's difficult to predict how rapidly prices will slow in the future depending on China’s reopening and war in Ukraine,” said Bank of Korea Gov. Rhee Chang-yong during a speech at the National Assembly in Yeouido, western Seoul, on Tuesday.

“Uncertainties in the monetary tightening in key countries, like the U.S., on the level of their terminal rate and the duration are considerable.” Rhee added, “Recovery of China’s economy and the IT sector in the future, along with the weak domestic property market, are building up difficulties in projecting the flow of the future economy.”

Consumers also expect inflation to stay far above the target range.

Inflation expectations in January returned to a 4 percent range in February, the first in three months.

Inflation expectations, which measure what consumers expect about inflation over the next year, inched up 0.1 percentage points from a month earlier to 4 percent.

It was the second straight month the figure rose.

Inflation expectations started to fall after peaking at 4.7 percent last July. The figure reached 4.2 percent in November, 3.8 percent in December and 3.9 percent in January.

The rise of public utility rates, oil price volatility and monetary tightening are some of the contributing factors to the prices.

“The rise of public utility rates centered on heating rates affected consumer perception on inflation,” said Hwang Hee-jin, head of Bank of Korea's Economic Survey Team. “Amid the rise of the consumer price index in January by 5.2 percent, the increase in the cost of living also contributed to the rise of inflation expectations.”

Oil prices as of late last year fell to around $70, but recently recovered to around $80. China’s reopening is expected to put upward pressure on inflation.

Although prices will gradually fall, maintaining the monetary tightening trend centered on price stabilization will be needed considering the increase that surpasses the target level is expected to continue throughout the year, according to the Bank of Korea.

Bank of Korea’s Monetary Policy Board is scheduled to hold a rate-setting meeting on Thursday.

Sixty-six percent of respondents to a survey project the central bank to keep the rate unchanged at 3.50 percent due to concerns about Korea’s household debt and the possibility of a recession, according to a survey conducted by the Korea Financial Investment Association.

Of those that projected a rate increase, 97 percent expect a quarter percentage point increase.

The survey was conducted between Feb. 10 through 15 and was participated in by 100 people covering bonds, including analysts and brokers.

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