![It's too early to talk about a change in interest rates, says the head of the Bank of Korea](https://image.cnbcfm.com/api/v1/image/107234452-16830785681683078565-29280934247-1080pnbcnews.jpg?v=1683083259&w=750&h=422&vtcrop=y)
Bank of Korea governor Rhee Chang-yong says it’s too early to talk about interest rate cuts.
South Korea’s central bank was one of the first to halt the monetary policy tightening cycle, fueling market speculation that it may start cutting interest rates soon. But Rhee told CNBC’s Chery Kang at the Asian Development Bank’s annual meeting in Incheon that those expectations are “premature.”
“We clarified, provided that our core inflation is still well above our goal and our inflation is below 4% … so it is falling,” Rhee said on Wednesday. “But I still think, provided that he’s above goal, we’ll have to wait and see, after which you realize, it could be a little bit too early to talk about a switch immediately.”
Rhee’s comment got here a day after the economy reported inflation hit a 14-month low at 3.7%, staying above the central bank’s goal of 2%.
“We have now paused our interest rate [hikes] in the last two meetings, because we raised our interest rate by 300 basis points in 1.5 years, at a really fast pace. We consider the time is right for us to assess what the cumulative impact of this rapid growth is,” Rhee said.
Wall Street banks reminiscent of Citi predict South Korea could begin a cycle of interest-rate cuts as early as the third quarter as core consumer price index readings fall further.
“In our view, the headline CPI is likely to fall to the early mid of 3% y/y in May’23E and a pair of% y/y in June’23E, potentially opening up room for a rate cut cycle ranging from Q3’23E” – Citi economists Jiuk Choi and Jin -wook Kim said in a Tuesday note.
Peak inflation
The governor of the Bank of Korea noted that global inflation levels appear to have peaked despite seeing stickiness in the underlying readings.
“I believe the cycle of tightening in advanced economies appears to be coming to an end,” he said, adding that he believed advanced economies couldn’t proceed with rapid hikes given the “financial stability issues” in the US and Europe.
He said the banking crisis in the West had limited impact on South Korea. He also noted that the exchange rate of the South Korean currency is not a priority.
“We aren’t overly concerned with the every day movement of the exchange rate, but we definitely need to be careful for top volatility,” he said, noting that the currency has traditionally been under pressure to pay dividends to overseas investors in April.
The South Korean Won it hit 1,340.77 against the US dollar early Wednesday, its weakest level since November.