Gov. Rhee wraps up term with final rate-setting meeting
The Bank of Korea maintained its benchmark interest rate at 2.5 percent Friday, citing volatility in the Korean won and rising inflationary pressures linked to the Iran conflict.
The Monetary Policy Board kept the key rate on hold in a unaminous decision, keeping the rate steady since July last year.
"The risk of stagflation remains limited for now," BOK Gov. Rhee Chang-yong said at a press conference at the central bank in Seoul on Friday, adding that it remains difficult to assess how the situation in Iran will unfold for the time being.
"If energy infrastructure were to be damaged, the impact could be prolonged, making it hard to generalize," he said.
The monetary policy decision comes as the Korean won has been experiencing sharp volatility amid developments in Iran, remaining under pressure from fluctuating oil prices. The currency recently weakened past the 1,500-per-dollar mark for the first time since the 2009 global financial crisis.
The won was quoted at 1,482.58 per dollar as of 2:35 p.m. Friday, recovering from its recent depreciation, but remaining volatile.
The Iran conflict has also intensified inflation concerns in Korea, which is vulnerable to external price shocks due to its heavy reliance on imports for energy and other resources. Higher global oil prices are expected to feed into domestic costs, adding upward pressure on consumer prices.
The central bank projected the country's consumer price increase for this year would outpace the previous projection of 2.2 percent made in February.
Rhee noted that if the supply shock proves temporary, it would be appropriate not to respond with interest rate adjustments.
"If the situation is prolonged and leads to broader inflationary pressure, however, policy action may be necessary," he said.
Rhee’s last dance
Friday’s rate-setting meeting was the last for Rhee, who is set to end his four-year term on April 20.
Rhee quipped that he had hoped to wrap up his term with improved stablity in the Korean won, but was unable to achieve it.
"If I had been able to step down with stabilized currency, I could think I had done a good job. But US President Donald Trump did not make that easy," he said.
When it comes to monetary policy management, Rhee underlined he had "no regrets."
"There were many who said the BOK was too late in cutting rates, while others later argued that the won depreciated because it did not raise rates. Given this balance of views, the monetary policy was fairly well managed," he said.
Governor nominee Shin Hyun-song is expected to chair future meetings after taking office. The BOK’s next rate-setting meeting is set to take place on May 28.
silverstar@heraldcorp.com
