(LEAD) BOK chief says back-to-back rate hikes bought time to respond to financial risks

(ATTN: UPDATES with BOK chief's comments in paras 1-10; RECASTS headline; CHANGES photo)
Bu Kim Boram

SEOUL, Oct. 12 (Yonhap) -- The head of the Bank of Korea (BOK) said Monday the central bank's back-to-back rate hikes gave it time to take action against a possible financial crisis.

"We set the direction of our monetary policy toward raising interest rates a little earlier than other major countries," BOK Gov. Shin Hyun-song said during a parliamentary audit held at the BOK headquarters in Seoul. "I believe we have bought some time."

The BOK lifted the benchmark interest rate to 3 percent over two consecutive meetings in July and August, citing "preemptive" action to prevent inflationary pressures from accelerating further.

After the rate-setting meeting in August, Shin said it was better to act on problems immediately, citing the proverb "To block something with a shovel that could have been blocked with a hand hoe," a Korean equivalent of "A stitch in time saves nine."

Shin said the back-to-back rate hikes are "unprecedented" and sent a strong signal to the market, which helped financial authorities respond preemptively to prevent even greater fluctuations.

"Over the past two to three weeks, yields on Korean government bonds have remained quite stable," he said. "While raising the benchmark interest rate causes some pain, I believe that acting preemptively helps stabilize the market and ultimately reduces the overall cost."

Regarding increased payments for overseas artificial intelligence (AI) service subscriptions, Shin said the central bank will make efforts to find ways to incorporate accurate data into national statistics.

South Korea posted a deficit of US$6.4 billion in its intellectual property services account in the first half, with $8.9 billion in payments related to software copyrights.

While overseas AI subscription fees are included in software copyright-related payments, the current account data compiled by the BOK does not provide a breakdown.

"We will continue to work on this, as it is still difficult to access the information needed to compile detailed statistics specifically on AI subscription fees," Shin said. "We will compile statistics that more accurately reflect current trends."

In a report submitted to the National Assembly, meanwhile, the BOK said the South Korean economy is expected to continue solid growth for the time being as robust semiconductor exports spill over into the broader economy.

"The domestic economy is expected to see a significant increase in its growth rate this year, driven by strong semiconductor exports, and it will maintain steady growth next year as well," the report said.

"As the semiconductor sector continues to expand, the positive impact of improving income conditions is expected to spread to domestic demand as a whole, including consumer spending, leading to a favorable growth trend."

The BOK raised its growth forecast to 3.3 percent for 2026 and 2.9 percent for 2027, saying the semiconductor upcycle continues and the gains are spilling over into the broader economy.

The country's gross domestic income (GDI), which measures the total income generated and costs incurred by all sectors within an economy, grew 13.2 percent in the first quarter of this year and 15.7 percent in the second quarter, compared with 3.5 percent in the fourth quarter of 2025.

The BOK said consumer prices are expected to remain above the 2 percent target as strong exports and investment support household incomes.

In particular, core inflation, which excludes volatile energy and food prices, rose nearly 3 percent in recent months due to supply chain disruptions stemming from the prolonged Middle East crisis.

"We plan to closely monitor inflation and economic trends, as well as financial stability, and determine the timing and pace of additional rate hikes," the BOK said.

The BOK will hold its next rate-setting meeting on Oct. 22.

brk@yna.co.kr
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