Tempered inflation warrants H2 rate cut: outgoing BOK rate-setter

The Bank of Korea (BOK) should be able to cut key rates in the latter half, reassured by inflation gradually tracking down to the central bank’s target of 2 percent, according to an outgoing member of the BOK monetary policy board, Tuesday.

Expanding the current threemonth forward guidance has proven untenable, according to Cho Yoon-je, as Korea’s monetary policy directive is exposed to far greater variables and external risks compared to the United States.

The roles, authority and discretion of rate-setting members of Korea and the U.S. are inherently different, he added, which is why market participants in Korea are unable to expect monetary and economic policy debates in public forums as vibrant as ones in the world’s largest economy.

The hawkish member of the seven-member monetary policy board said he would like to continue making contributions to advance the economic discussions of the country after his four-year term ends April 20.

“The top priority of the BOK has been and always will be price stabilization, a precondition to lowering the key rate in the latter half,” Cho said Tuesday during a presser at the central bank.

Headline inflation is expected to be tempered at 2.3 percent in the July to December period, meaning the year-end figure will be much lower.

“Real rates will be elevated, essentially bringing the effect of monetary tightening. The central bank policy — preemptive in nature — will then not rule out taking steps to ease. But we are not in any way in a rush,” he said.

The accumulated increase in prices as measured by headline inflation came to about 13.6 percent and 10 percent for core inflation over the past three years.

“I would have preferred faster downward price movements since the pace of decrease is tied closely to currency values and the everyday life of the public,” he said. “The sooner the price stabilizes, the greater the household purchasing power.”

Core inflation is showing signs of steady downward movement, in his view. However, headline figures remain elevated, hamstrung by supply-shock complications, especially the prices of fresh food and agricultural produce.