Bank of Korea chief sees trade-offs in its policy setting in 2023

SEOUL  -South Korea’s central bank chief said on Wednesday it will have to pay attention to the trade-off between managing inflation, economic growth and financial stability in its monetary policy in 2023.

The remarks at a news conference for foreign-media journalists appeared in step with his comments on Friday last week that prompted investors to boost bets that the Bank of Korea’s rate-hike cycle has reached its end.

“This year will likely be a year when we will have to make close consideration of trade-offs with the economic growth and financial stability situation, while maintaining focus on price stability,” Governor Rhee Chang-yong said.

Rhee said last Friday that South Korea’s economy would slow this year from 2022 by a bigger margin than that forecast in November, while inflation will likely slow in line with its expectations at that time.

On Wednesday he said the drop in bond yields even after the central bank raised its policy interest rate last week was largely in line with his expectations and probably reflected a downward adjustment by some investors of the interest rate outlook.

He did not elaborate on the expected course of interest rates this year, saying in response to a question that “the policy would be dependant on the incoming flow of data and information”.

The Bank of Korea has raised the policy interest rate by a total of 325 basis points from a record-low 0.5 percent since August 2021 to take it to 3.50 percent last Friday to contain inflation.

Meanwhile, he said he was sceptical about the risk of massive capital outflows from South Korea for now even if the Bank of Japan raises interest rates soon, pointing to such factors as still low interest rates in the bigger neighbour.