BoK Governor Rhee says growth path to hinge on the Middle East and trade conditions, adds board members are in wait-and-see mode as Middle East conflict situation is too volatile
Says:
- It is too early to judge the direction of the Middle East shock, stating that a temporary shock does not warrant a rate response, although a prolonged shock may require a policy response.
- Iran war has a bigger impact on inflation and growth outlook in South Korea than the war in Ukraine.
- To assess the size and duration of the Middle East war impact.
- Too early to discuss a rate hike amid Middle East volatility.
- Board needs to watch the course of Middle East negotiations first.
- Asian economies more vulnerable to supply-side impact from Iran war compared to European economies.
- Exports are better than expected.
- Impact of extra budget being planned will be affected in the BoK's May revision of forecasts.
- National Pension Service overseas investment is being planned for some cuts.
- World Government Bond Index inclusion is to bring in foreign inflow to South Korea.
- Recent introduction of dotplot forward guidance is positive for policy transparency, adds whether or not BoK's dotplot would continue as a policy tool will be determined by the incoming governor.
Context
The Bank of Korea's Governor Rhee indicates that the growth trajectory depends significantly on the evolving situation in the Middle East, suggesting that while short-term volatility may not necessitate a rate response, a prolonged conflict could provoke policy action. This statement emphasizes the heightened sensitivity of South Korea's economy to external shocks, particularly inflationary pressures from regional events, reinforcing the idea that upcoming data will be critical in determining future monetary policy decisions.
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