Bank of Korea Governor Rhee Chang- yong states it’s prematurely to begin discussing rate cuts.
The South Korean reserve bank was among the very first to pause its tightening up cycle, stimulating market speculation that it might quickly start cutting rates. But Rhee informed CNBC’s Chery Kang at the Asian Development Bank’s yearly conference Incheon that those expectations are “premature.”
“We made it clear, given that our core inflation is still well above our target, and our inflation is going below 4% … so it’s going down,” Rhee statedWednesday “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 remarks come a day after the economy reported inflation reached a 14- month low of 3.7% while hovering above the reserve bank’s target of 2%.
“We paused our rates of interest [hikes] in the last 2 conferences due to the fact that we have actually increased our rates of interest by 300 basis points in 1 1/2 years, really quickly in speed. And we believe it’s the correct time for us to type of evaluate what is the built up effect from this fast boost,” Rhee stated.
Wall Street banks such as Citi anticipate South Korea might begin a rate-cutting cycle as early as the 3rd quarter as heading customer rate index readings boiling down even further.
“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 financial experts Jiuk Choi and Jin- wook Kim stated in a Tuesday note.
Peaked inflation
The Bank of Korea guv kept in mind that international inflation levels appear to have peaked in spite of seeing stickiness in core readings.
“I think the tightening cycle in advanced economies seems close to an end,” he stated, including that he believes sophisticated economies can not continue their fast walkings offered “financial stability issues” in the U.S. and Europe.
The banking crisis in the West has actually had a restricted effect on South Korea, he stated. He likewise kept in mind that the foreign exchange rate for the South Korean currency is not worrying.
“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 stated, keeping in mind that the currency has actually typically seen pressure on dividend payments for foreign financiers in April.
The South Korean won struck 1,34077 versus the U.S. dollar early Wednesday, the weakest level given that November.
