BOK chief: 0.5-point rate hike would cut inflation by 0.08 percentage points

Bank of Korea Governor Shin Hyun-song said Monday that raising the benchmark interest rate by 0.5 percentage points would lower consumer price inflation by 0.08 percentage points.

Shin made the remarks at a national audit conducted by the National Assembly's Finance and Economy Planning Committee at the Bank of Korea in Jung-gu, Seoul, explaining the projected impact of a rate hike on consumer price inflation, household debt growth and housing price growth one year out.

According to a document titled "Model estimates of the impact of a 50 basis point rate hike" submitted by the Bank of Korea to Democratic Party of Korea lawmaker Yun Hu-deok, a 0.5 percentage point increase in the benchmark interest rate was estimated to reduce consumer price inflation by 0.08 percentage points, household debt growth by 0.06 percentage points and housing price growth by 0.5 percentage points. Real GDP growth was projected to fall by 0.12 percentage points.

Shin also said the government's budget bill for next year was expected to add 0.5 percentage points to GDP growth, with the resulting increase in inflation estimated at 0.06 percentage points.

"There is some room to assess further whether it adds additional upward pressure on inflation," he said, adding that "0.06 percentage points could be seen as not particularly large."

Responding to People Power Party lawmaker Lee Jong-wook's assertion that monetary policy and fiscal policy were out of step with each other, Shin said the Bank of Korea was "verifying through models whether they are in fact out of step or not."

On Lee's point that the government's expansionary fiscal stance was putting short-term pressure on prices and money supply, Shin acknowledged it was "bound to create some pressure," but added that "over the medium to long term, if potential growth rises, it may not be out of step."

Shin also said Monday that the Bank of Korea had not responded adequately to the single-stock leveraged ETF incident and expressed regret to the public.

Asked by Democratic Party of Korea lawmaker Jeong Seong-ho whether the Bank of Korea had fulfilled its proper role in introducing single-stock leveraged ETFs, Shin said the bank "did not issue sufficient warnings."

On the two consecutive benchmark interest rate hikes in July and August, Shin again stressed the importance of preemptive action, saying any further increases would be decided based on how inflation trends develop.