The Bank of Korea reiterated the need to raise the base interest rate, citing risks of rising prices. In its business report submitted ahead of a briefing to the National Assembly’s Finance and Economy Committee on the 9th, the central bank stated, “Considering recent changes in policy conditions—such as inflation exceeding the target level, improved growth momentum, and heightened financial stability risks—it is necessary to raise the base rate at an appropriate time in the future.” This aligns with Governor Shin Hyun-song’s recent stance, which emphasized that raising the base rate soon would be appropriate given strong economic growth driven by high exchange rates, elevated oil prices, and significant profit increases at semiconductor export firms. Governor Shin also noted in his opening remarks at the briefing, “It is judged that raising the base rate at an appropriate time is necessary.”

The Bank of Korea has maintained the base rate at 2.5% annually since cutting it in May last year. The next Monetary Policy Board meeting, which sets the base rate, is scheduled for the 16th. If the rate is raised at this meeting, it will mark the first increase since August 2021, during the COVID-19 pandemic. The consumer price index rose continuously due to high oil prices and a strong won caused by the Middle East war that broke out at the end of February, reaching 3.2% last month—exceeding the Bank of Korea’s target of 2% year-on-year. The living cost index, which tracks items heavily impacting daily life, rose even higher at 3.4%. The central bank stated, “The consumer price index is expected to remain high as downward pressure from falling international oil prices is offset by expanding demand-driven inflation amid economic recovery.”

The Bank of Korea added, “Other major central banks are also shifting to rate hikes in response to the inflationary impact of rising energy prices.” It explained, “While the U.S. Federal Reserve held rates steady four consecutive times in the first half of this year, it has signaled a possible shift to hikes in the second half. The Euro region, Japan, and Australia have also raised their base rates in light of inflation risks.”

Regarding recent volatility in the stock market, driven by semiconductor export firms like Samsung Electronics and SK Hynix, the central bank assessed, “The Korean stock market is likely to continue experiencing high volatility due to concerns over the sustained growth of the AI (artificial intelligence) industry, shifts in major countries’ monetary policy stances, and changes in global capital flows.” However, it added, “Considering upward revisions to earnings forecasts for semiconductor firms and the government’s efforts to improve capital market systems, the likelihood of a sustained downward trend remains limited.”

On the semiconductor industry, which some fear may have passed its peak, the central bank evaluated, “The recent semiconductor market is showing a stronger upward trend than past cycles, driven by robust investments in global AI-based infrastructure like data centers.” It noted, “While semiconductor demand has structurally expanded, risks such as financial market adjustments due to concerns over AI profitability, reduced real investments by big tech firms, and energy bottlenecks remain latent.”