Bank of Korea Governor Welcomes Bottoming Out of Chip Prices

Bank of Korea Governor Rhee Chang-yong highlighted the improving outlook for semiconductors, conveying his hopes that recovering exports of technology products will support economic growth next year.

(Bloomberg) — Bank of Korea Governor Rhee Chang-yong highlighted the improving outlook for semiconductors, conveying his hopes that recovering exports of technology products will support economic growth next year.

Semiconductor prices are “hitting the bottom, and the price has started to go up, so that is very good news for us,” he said Wednesday in an interview with CBNC on the sidelines of the International Monetary Fund and World Bank meetings in Morocco.

His comments came hours after Samsung Electronics Co. reported a more modest slide in quarterly profit after staunching losses at its chip division. Its shares rose as much as 4.5%, the most in more than a month.

The BOK has grown more concerned in recent months about the fragility of the economy as exports slump. The Korean economy is driven by technology exports from semiconductors to rechargeable batteries and many of its shipments get channeled to China, the world’s second-largest economy that is undergoing an economic downturn. Beijing is mulling new stimulus, according to people familiar.

Geopolitical tensions have also overshadowed Korean chipmakers, with the US imposing controls on exports of high-tech equipment being shipped to China, where Samsung and SK Hynix Inc. operate plants. In a coup for South Korea, its presidential office said this week that the US will allow the two companies to acquire the equipment they need to sustain and expand their chipmaking operations in China.

“Our semiconductor industry’s business is heavily dependent on China’s growth, and that’s why I said we need to diversify,” Rhee said. “We can maintain our competitiveness, but given these geopolitical tensions and relocation of supply chains, I guess we probably have much homework to do.”

Rhee said the primary focus of his bank remains on fighting price pressures. He said he expects the pace of inflation to slow to the low-3% range by year-end. The BOK meets next week for a rate decision.

“Our policy decision will primarily focus on inflation, rather than growth and other factors,” he said. “Yet we’ll definitely look at the growth as well as financial stability, but at this moment behavior of inflation is the first priority.”

The BOK has kept the door open to potential rate hikes ever since its last increase in January as it monitors sticky inflation. A rise in oil prices spurred by violence in the Mideast threatens to put further upward pressure on costs.

Another factor supporting restrictive policy is growing household debt.

The bank’s prolonged hawkish hold this year has come after it led the developed world in tightening policy in the early stages of the post-pandemic recovery. The BOK started its rate-hike cycle in August 2021.

Korea’s central bank expects inflation to slow from this month after it accelerated to 3.7% year on year in September, exceeding the consensus estimate.

Rhee noted Korea’s core inflation rate has “luckily” remained unchanged at 3.3% for three months in a row, forecasting the headline number will likely converge to the target rate of 2% next year. Korea continues to be overshadowed by “looming uncertainties” such as the oil price and how China’s economy will do, he said.

The BOK’s hawkish tilt in recent months has been in line with efforts by global central bankers to stay alert to upside risks to inflation. The Federal Reserve in particular has signaled that the US benchmark is likely to remain high for longer than previously thought.

“Higher for longer is a main theme in this Marrakech meeting,” he said, referring to the venue of the IMF gathering. Korea’s rapid aging with the world’s lowest fertility rate adds an “idiosyncratic” dimension to the nation’s efforts to spur growth at a time when the world may be entering a regime of tighter monetary policy, he said.

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