[Interest Rate Hike Variable] "Agree with Interest Rate Hike, but..." Timing Varies

"Shock Mitigation Signal... July Is Appropriate"
"Inflation Risk, Response in November"

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] U.S. Treasury Secretary Janet Yellen mentioned the necessity of raising the U.S. benchmark interest rate, sparking a surge in calls for an early rate hike in South Korea as well. Experts foresee the sequence of 'inflation → interest rate hike' as inevitable, but opinions differ on the timing. Some argue that the hike should be implemented as soon as the second half of the year begins, while others advocate a cautious approach, suggesting decisions should be made after observing trends.

Professor Ha Jun-kyung of Hanyang University’s Department of Economics stated, "If inflation rises to the 3-4% range, it will be impossible not to respond with interest rate hikes," adding, "Ultimately, whether rates are raised will depend on how much inflation the U.S. Federal Reserve officials are willing to tolerate." In fact, U.S. consumer prices rose 2.6% last March, surpassing the Fed’s target of 2.0%, and there are forecasts that it will exceed 3% thereafter.

Regarding South Korea’s rate hike, he said, "We need to send signals to mitigate some of the shocks starting now and consider raising rates around July."

This argument appears to take into account the rising prices amid strong consumer recovery. According to Statistics Korea, consumer prices in April rose at the fastest pace in 3 years and 8 months. As consumption becomes more active, demand for funds also increases, inevitably pushing interest rates higher. This indicates that the situation where inflation can no longer be tolerated is gradually approaching.

Professor Kim Sang-bong of Hansung University’s Department of Economics also supports the possibility of a rate hike around the end of this year. Professor Kim said, "Prices of agricultural, livestock, and fishery products, industrial goods, and rents have risen significantly," adding, "We need to raise rates around November, when herd immunity is expected, to respond to rising prices." According to Statistics Korea, prices of agricultural, livestock, and fishery products surged 13.1% last month, and industrial goods prices also rose 2.3%.