Lee Chang-yong, Governor of the Bank of Korea, "Inflation Rate Expected to Stay in the 3% Range Until Year-End"

"Inflation Rate to Remain in the 3% Range Until Year-End"
US Federal Reserve Likely to Raise Interest Rates Again

Lee Chang-yong, Governor of the Bank of Korea, said, "There is a possibility that inflation may temporarily show a 2% range, but it seems it will remain in the 3% range until the end of the year."

Governor Lee made this remark on the 22nd during a current affairs inquiry at the National Assembly's Planning and Finance Committee when asked about the future inflation rate outlook.

Regarding the record-high 1.75 percentage point gap between the Korea-US base interest rates, Governor Lee said, "The impact on the exchange rate has been reflected for several months, and it seems to also influence changing investment tendencies in portfolios investing in the US."

On the possibility of further interest rate hikes in the US, he said, "There does not seem to be a consensus yet that the US Federal Reserve (Fed) will not raise rates. The possibility of a hike is high." He added, "If the US clearly signals that it will start to lower rates or intends to lower them, there is a very high chance the exchange rate will fall."

[Image source=Yonhap News]

He added, "Although the US central bank denies it, the market seems to judge that the possibility of rate cuts within this year is significant."

In response to criticism about administrative control over finance, Governor Lee said, "Despite the Bank of Korea raising policy rates, there are criticisms that the rise in deposit and loan interest rates has been blocked, implying monetary policy is ineffective, but I can clearly say that is not true."

He continued, "The fact that inflation is falling as expected indicates that the interest rate hikes are effective. I believe the effectiveness of monetary policy is being maintained."

Regarding the forecasted downward revision of South Korea's economic growth rate, he said, "Previously, we projected 1.6%, but we will slightly lower it this time. In that sense, consumption will also decrease, but it is difficult to think that the typical 'high in the first half, low in the second half' pattern we consider will not occur at all."