[Editorial] Benchmark Rate Held Steady, but Fight Against Inflation Is Not Over

Bank of Korea Governor Shin Hyun-song strikes the gavel during a plenary meeting of the Monetary Policy Board at the Bank of Korea in Jung-gu, Seoul, on the 22nd. Photo by Kim Hyun-min

The Bank of Korea’s Monetary Policy Board held its benchmark interest rate steady at 3.00% per year. After raising rates twice in a row in July and August, it is understandable that the board decided to wait and see how things develop. However, holding rates steady should not mean easing vigilance over rising prices.

Consumer prices rose 2.9% in September, above the Bank of Korea’s 2% target. Core inflation, which excludes food and energy, also stood at 2.8%. External factors, including international oil prices and exchange rates, remain volatile. If an economic recovery driven by the semiconductor boom stimulates consumption and investment, it could push prices up again. The situation is not one in which we can take comfort in a slight decline in the inflation rate.

At the same time, it would likely have been difficult to keep raising rates. Interest burdens on households and businesses have already grown, and vulnerable borrowers and small and medium-sized enterprises in particular could struggle to secure financing. The prospect of weaker consumption and investment is also a concern. Since the effects of previous rate hikes have yet to fully materialize, rushing to raise rates further could cause an unnecessary shock to the economy and financial markets. This rate freeze should be used as an opportunity to assess the effects of the tightening measures taken so far and our economy’s ability to withstand them.

Future decisions will require even greater prudence. The board should closely monitor how much inflation expectations have eased since the two rate hikes, as well as changes in household lending growth and private consumption. It must not allow inflation concerns to go unaddressed, but it must also guard against economic vulnerabilities being the first to buckle under the burden of higher rates. The next rate adjustment should be decided based on these developments and newly released economic indicators. The board must neither rush nor miss the moment to act.

The government, too, should make price stability its top policy priority. It should improve the distribution system and reduce supply uncertainty, while focusing support on people facing hardship. It is also important to manage fiscal spending so that it does not reignite inflation. Holding rates steady is a decision to assess the ripple effects of previous rate hikes; it does not mean that the economy as a whole can stop worrying about inflation.

This content was produced with the assistance of AI translation services.