Bank of Korea Senior Deputy Governor Signals Potential Rate Hike on Strong Growth

SEOUL, May 4 (Yonhap) -- Ryoo Sang-dai, senior deputy governor of the Bank of Korea (BOK), has said it is time to consider a rate hike, citing the country's better-than-expected economic growth in the first quarter. The comment comes despite the economic uncertainties caused by the ongoing conflict in Iran.

"When we held the key rate in April, we noted that the war might force us to lower our growth forecast and raise our inflation forecast," Ryoo was quoted as saying Sunday (local time) in pool reports while visiting Samarkand, Uzbekistan, for an annual meeting of the Asian Development Bank (ADB) and other regional events. "Since then, we are seeing economic growth not falling much below 2 percent, while inflation can exceed 2.2 percent. Given that, it is time to stop rate cuts and start thinking about rate hikes."

It marks the first time a member of the BOK's seven-member monetary policy board has signaled the possibility of a rate hike. Last month, the central bank held the key interest rate steady at 2.5 percent for the seventh consecutive session, citing Middle East uncertainties and adopting a cautious stance amid risks to inflation, currency and growth.

Subsequent data showed that South Korea's economy expanded 1.7 percent in the first quarter from three months earlier, marking the fastest quarterly growth in 5 1/2 years, driven by strong semiconductor exports. The BOK had earlier projected 0.9 percent growth.

Ryoo said the ongoing semiconductor boom is supporting the export-driven economy, while inflationary pressures remain elevated despite the government's recent measures to curb consumer prices, including nationwide fuel price caps.

The BOK will hold its next monetary policy meeting on May 28, the first to be chaired by new BOK Gov. Shin Hyun-song, who took office last month.