It will be the first time its policy board meets after President Yoon said this week a cut may be necessary. — Reuters
SEOUL: South Korea should try to address the country’s high cost of living through structural reforms instead of relying on the central bank to fight it, says a Bank of Korea official (BoK), as the bank mainly targets inflation rather than price levels.
“Targeting price level rather than the inflation rate could end up increasing volatilities to inflation and the economy as monetary policies would be responding backwardly to price trends,” senior deputy governor Ryoo Sangdai said in a written response to Reuters’ queries.
Ryoo, a voting board member, was responding to whether the central bank should do more to address inflation eating into people’s salaries.
Soaring food prices around South Korea’s staples including apples and green onions have been at the centre of public debate since the country’s parliamentary election in April, where President Yoon Suk Yeol’s party suffered a stinging defeat amid voter anger over rising food prices.
Ryoo’s comments come as the mood turns increasingly dovish in Asia’s fourth-largest economy ahead of a monetary policy meeting next Thursday.
It will be the first time its policy board meets after President Yoon said this week a cut may be necessary, in strongest remarks yet from the government.
Ryoo declined to comment on interest rates ahead of next week’s policy decision, but said the won’s recent movements amid rate cut expectations seem to be also affected by South Korea’s economic conditions and capital flows, among others.
The BoK, whose chief mandate is “to promote macroeconomic stability including price,” executes its policies independently and targets to keep headline inflation at 2% over the medium term.
However, the central bank made it clear, in a June 18 report, that monetary policy alone cannot solve the high cost of living as the source of inflationary pressure is agriculture and the way products are distributed.
Consumer price inflation eased to 2.4% in June from a year earlier, the slowest pace since July last year, but an index for the cost of food, shelter and clothes was at 155 for South Korea in 2023. — Reuters
