Global Courant 2023-05-03 07:27:23
Rhee Chang-yong, governor of the Bank of Korea, at an event during the spring meetings of the International Monetary Fund (IMF) and World Bank in Washington, DC, US, on Friday, April 14, 2023.
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Bank of Korea Governor Rhee Chang-yong says it is too early to talk about rate cuts.
The South Korean central bank was one of the first to break its tightening cycle, sparking speculation in the market that it may soon begin rate cuts. But Rhee told CNBC’s Chery Kang at the annual meeting of the Asian Development Bank Incheon that those expectations are “premature.”
“We’ve made it clear, given that our core inflation rate is still well above our target, and our inflation rate is, we have good news, that our inflation rate is going to be below 4% in April, so it’s going down,” Rhee said Wednesday. “But still, I think given that it’s above target, we have to wait and see and then you know, it would be a little premature to talk about pivot at this point.”
Rhee’s comments come a day after the economy reported inflation hit a 14-month low of 3.7% while hovering above the central bank’s target of 2%.
“We have paused our rate hikes in the past two meetings because we raised our rate by 300 basis points in 1½ years, very quickly. And we think now is the right time to assess the accumulated impact of this rapid increase,” he said. Rhee.
Wall Street banks such as Citi predict that South Korea could begin an interest rate cut cycle as early as the third quarter as general consumer price indices fall even further.
“In our view, headline CPI is likely to fall to early-mid 3% yoy levels in May ’23E and 2% yoy levels in June ’23E, potentially creating room for a rate cut cycle starting in 3Q23E,” economists at Citi Jiuk said. Choi and Jin-wook Kim said in a note Tuesday.
Peak inflation
The governor of the Bank of Korea noted that global inflation levels appear to have peaked despite the persistence of key data.
“I think the tightening cycle in advanced economies seems to be about to end,” he said, adding that he thinks advanced economies cannot continue their rapid rises because of “financial stability issues” in the US and Europe.
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The banking crisis in the West has had a limited impact on South Korea, he said. He also noted that the exchange rate for the South Korean currency is not a concern.
“We are not very concerned about the day-to-day change in the exchange rate, but we should certainly be wary of the high volatility,” he said, noting that the currency has traditionally been under pressure on dividend payments to foreign investors in April.
The South Korean won reached 1,340.77 against the US dollar early Wednesday, its weakest level since November.
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