- Bank of Korea Governor Ri Chang-young told CNBC’s Cherry Kang that talks on the pivot of interest rate cuts are “a bit premature.”
- Ri’s comments come a day after the economy reported inflation had reached a 14-month low of 3.7% while hovering above the central bank’s 2% target.
Bank of Korea Governor Ri Chang-yong said it’s too early to start talking about interest rate cuts.
South Korea’s central bank was one of the first to pause the tightening cycle, sparking market speculation that it may soon start cutting interest rates. But Ri told CNBC’s Sherry Kang at the Asian Development Bank’s annual meeting in Incheon that those predictions were “premature.”
“We’ve made that clear, given that our core inflation is still well above our target, our inflation is below 4% … so it’s coming down,” Ri said Wednesday. “But still, I think because it’s above target, we’ll have to wait and see and then as you know, it would be too early to talk about the pivot at this moment.”
Ri’s comments come a day after the economy reported inflation had reached a 14-month low of 3.7% while hovering above the central bank’s 2% target.
“We have paused our interest rate [hikes] In the last two meetings because we’ve raised the rate by 300 basis points in a year and a half, which is very fast. And we believe that this is the right time for us to assess what kind of impact has been accumulating from this rapid increase.”
Wall Street banks like Citi expect South Korea to start its rate-cutting cycle as early as the third quarter as core CPI readings drop further.
“In our view, the core CPI is likely to decline to levels of 3% yoy in early-mid-May 2013 and 2% yoy in June 23rd, which could open the door for a rate-cutting cycle from the third quarter of 23rd year,” Citi economists Gyeok Choi and Jin Wook Kim said in a note on Tuesday.
The Governor of the Bank of Korea noted that global inflation levels seem to have peaked despite seeing a flat headline.
“I think the tightening cycle in advanced economies appears to be nearing an end,” he said, adding that he believes advanced economies cannot continue their rapid rises given “financial stability issues” in the United States and Europe.
He said the banking crisis in the West had a limited impact on South Korea. He also noted that the foreign exchange rate of the South Korean currency is not important.
“We are not too worried about the daily change in the exchange rate, but we definitely have to be careful about big fluctuations,” he said, noting that the currency has traditionally seen dividend pressure for foreign investors in April.
The South Korean won reached 1,340.77 against the US dollar early Wednesday, the weakest level since November.