BOK’s Shin Says Preemptive Rate Hikes Bought Room to Hold at 3.00%, Watch Growth and Inflation

Shin Hyun-song, governor of the Bank of Korea, said the central bank’s previous two rate increases gave policymakers room to assess additional economic indicators. He also said a decline in the exchange rate can boost the purchasing power of low-income households.

Speaking after the Monetary Policy Board left the benchmark interest rate unchanged at 3.00% on Oct. 22, Shin said back-to-back rate hikes in July and August had given the central bank greater flexibility to run policy in line with domestic economic conditions.

He described the hold decision as “the fruit after hoeing.” The comment followed his explanation in August that the central bank had acted with a hoe to stop what might otherwise have required a shovel, underscoring that the preemptive move had bought time to watch additional data.

Still, he said upside risks to growth and inflation had risen from the previous forecast.

“Compared with the August outlook, upside risks to growth and inflation appear to have grown,” Shin said. “But I did not think it would be too late to make a judgment after checking additional data, including third-quarter real gross domestic product and October inflation trends.”

Shin also commented on the impact of exchange-rate moves on households, saying a 10% decline in the exchange rate raises the purchasing power of households in the first income quintile by more than 0.4%. The first income quintile refers to the bottom 20% of households ranked by income.