Inflationary pressure is building up with the Korean won rate against the U.S. dollar becoming a lesser factor in keeping consumer prices subdued in Korea, said a latest member to the Bank of Korea’s monetary policy board.
“Compared with the movements of last two years, the exchange rate’s downside pressure on consumer prices has become smaller,” said Lim Ji-won, former JP Morgan economist who had joined the seven-member rate-setting board of the Korean central bank for a four-year term in May.
Her mention of inflationary building comes at a sensitive time before the monetary policy holds last rate meeting for this year on Nov. 30.
Despite worsening domestic conditions, the BOK has been preparing the market for a rate move which has been delayed since the first hike in more than six years in November last year. If left unchanged at 1.50 percent, the gap in benchmark rates of Korea and the U.S. could further widen and stoke another capital flight. The U.S. rates that have been picked up from zero range from December 2015 are now at 2.00-2.25 percent after the latest hike in September. Another 25-basis-point raise has been warned for December.
Lim said the impact from the U.S. tightening would have less negative impact on the global economy as the move is aimed to prevent overheating rather than to rein in inflation.
Her comment did not have much impact on the market as a rate hike in November has already been factored in.
The three-year government bond yield ended morning trade at 1.971 percent versus previous closing of 1.964 percent.
By Kim Yeon-joo and Cho Jeehyun
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