JACKSON HOLE, Wyo./SEOUL : Bank of Korea Gov. Rhee Chang-yong said Saturday interest rates would need to continue increasing until inflation is in decline, but the country likely could not call a halt to its tightening cycle before the U.S. Federal Reserve.
Inflation in Korea is largely the result of outside issues like energy prices, Rhee said, and,"if you ask me, whether I’m going to stop ... what happens if the oil price increases again? ... It’s very hard for us to know the exact timing, given the importance of the external shock." Inflation in Korea is expected to run at around 5 per cent by the end of 2022, and fall through 2023. Its central bank, like many others, targets 2 per cent inflation.
Even the fallout from Fed Chair Jerome Powell's speech here on Friday, which sparked a sell-off in U.S. equity markets, would be watched, Rhee said, with an eye on how the won opens during Monday trading. The Fed chair promised U.S. interest rates would move to"restrictive" levels and remain there as long as needed to lower U.S. inflation.
"There are a few days we see movement that’s too excessive - but so far I think our exchange rate movement is very much in line with major currencies," Rhee said."This depreciation pressure due to the dollar strength actually is a bad factor for our inflation, because our imported prices increase a lot," he said, but"the current depreciation pressure does not mean any liquidity problems or solvency problems, or credit problem for Korea.
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