Rhee Chang-yong, governor of the Bank of Korea, at an occasion through the spring conferences 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’s too early to begin speaking about rate cuts.
The South Korean central financial institution was one of the primary to pause its tightening cycle, spurring market hypothesis that it may quickly start reducing charges. But Rhee advised CNBC’s Chery Kang on the Asian Development Bank’s annual assembly Incheon that these expectations are “premature.”
“We made it clear, given that our core inflation is still well above our target, and our inflation is, we have good news, that our inflation is going below 4% in April, so it’s going down,” Rhee mentioned Wednesday. “But still, I think that given that it’s above the target, we have to wait and see and then you know, it would be a little bit premature to talk about pivot at this moment.”
Rhee’s feedback come a day after the financial system reported inflation reached a 14-month low of 3.7% whereas hovering above the central financial institution’s goal of 2%.
“We paused our interest rate [hikes] in the last two meetings because we have increased our interest rate by 300 basis points in 1½ years, very fast in pace. And we think it’s the right time for us to kind of assess what is the accumulated impact from this rapid increase,” Rhee mentioned.
Wall Street banks resembling Citi predict South Korea may begin a rate-cutting cycle as early because the third quarter as headline shopper value index readings coming down even additional.
“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 opening up scope for a rate-cutting cycle from 3Q23E,” Citi economists Jiuk Choi and Jin-wook Kim mentioned in a Tuesday word.
Peaked inflation
The Bank of Korea governor famous that world inflation ranges appear to have peaked regardless of seeing stickiness in core readings.
“I think the tightening cycle in advanced economies seems close to an end,” he mentioned, including that he thinks superior economies can not proceed their fast hikes given “financial stability issues” within the U.S. and Europe.
The banking disaster within the West has had an restricted influence on South Korea, he mentioned. He additionally famous that the international change rate for the South Korean foreign money isn’t regarding.
“We are not very much concerned on the every day change of the exchange rate, but we definitely have to be careful for the large volatility,” he mentioned, noting that the foreign money has historically seen strain on dividend payouts for international traders in April.
The South Korean won hit 1,340.77 in opposition to the U.S. greenback early Wednesday, the weakest stage since November.