Bank of Korea’s Rhee says don’t think South Korea can end policy tightening before Fed

The Bank of Korea must keep raising interest rates until inflation is in decline, but the central bank likely could not halt its tightening before the U.S. Federal Reserve, Governor Rhee Chang-yong said on Saturday.

In an interview with Reuters, Rhee also said South Korea’s central bank is ready to take steps including intervention to stabilize the won against the dollar, if needed, should the bank determine speculative forces are causing the currency’s fall.

Rhee’s comments, on the sidelines of the Jackson Hole conference of central bankers in the U.S. state of Wyoming, appeared to quash speculation that the BOK might be one of the first big central banks to ease off in the global battle against the hottest inflation in decades.

Asia’s fourth-largest economy has been in the vanguard of global tightening. The BOK was among the first central banks to abandon pandemic-era monetary stimulus, raising its key policy rate by 2 percentage points since August last year to 2.5% KROCRT=ECI. Read full story

Dollar appreciation driven by Fed rate increases has added to inflation in many open economies around the world, including South Korea, as the local currency falls in value.

“We are now independent from government, but we are not independent from the Fed,” Rhee said. “So if the Fed continues to increase the interest rate, it will have a depreciation pressure for our currency.

Although the BOK began raising interest rates before the Fed, with its first hike coming a year ago, “whether we can end earlier – I don’t think so.”

South Korea’s inflation is largely the result of outside issues like energy prices, Rhee said.

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