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© Reuters. The logo of the Bank of Korea is seen in Seoul, South Korea, November 30, 2017. REUTERS/Kim Hong-Ji/File Photo
In a New Year message, Bank of Korea Governor Rhee Chang-yong emphasized the need to find the right policy mix as South Korea approaches the end of its long fight to bring consumer prices under control.
He highlighted recent market concerns over a financially troubled builder as a “warning sign” over the financial risks of prolonged monetary tightening, mentioning doubts about the integrity of commercial real estate loans in major countries and a mid-sized local developer forced to restructure its heavy debt load.
Rhee stressed the importance of being thoroughly prepared for the possibility of financial instability that can arise as tightened policy continues. He also expressed the need to pay particular attention to ensure credit risks do not grow around what is a weak link in the economy.
The central bank’s inflation target of 2% remains valid, but Rhee acknowledged that external and domestic factors require more fine-tuning to determine the optimal interest rate path and how much longer to maintain tightened monetary policy. South Korea’s annual consumer inflation eased for a second month in December to 3.2%, supporting the BOK’s view on the inflation path, which is that price pressure will ease gradually to its target level of 2% towards the end of 2024.
President Yoon Suk Yeol also stated that pressure on prices is expected to ease further in 2024 and that the government will take measures to ensure the financially more vulnerable, including small business owners, see the benefits of a pull back in inflation.