Head of Bank of Korea Welcomes Decline in Chip Prices

The governor of the Bank of Korea, Rhee Chang-yong, announced an improvement in the prospects for the development of the situation in the semiconductor market.

Head of Bank of Korea Welcomes Decline in Chip Prices

According to Chang-yong, the restoration of the mentioned technological products may become a factor in supporting economic growth next year. On Wednesday, October 11, he, talking with journalists on the sidelines of meetings of the World Bank and the International Monetary Fund in Morocco, said that the cost of semiconductors has reached the bottom, and began to show growth dynamic, which is very good news.

Over the past few months, the Bank of Korea has stated concern about the state of the economic system against the background of a sharp drop in export activity indicators. For South Korea, the supply of technology is the driving force of the economy. Semiconductors, batteries and other products manufactured by local companies are exported abroad. Much of the supply goes to China, the world’s second-largest economy, which is currently in a state of decline. Insiders claim that Beijing is exploring potential incentives for economic development.

The current state of affairs in the geopolitical sphere complicates the activities of chip manufacturing companies from South Korea. The United States has established a system of control over the export of high-tech equipment to China. This measure has become a problem for South Korean companies Samsung and SK Hynix, which have factories on Chinese territory. But this week, the administration of the President of South Korea announced that the United States would allow the mentioned brands to purchase American equipment to maintain and expand chip manufacturing activities in China.

Rhee Chang-yong says that the business of the South Korean semiconductor industry largely depends on the state of the Chinese economic system, which is why measures should be taken to diversify the supply of high-tech products. According to him, against the background of the current geopolitical tensions between Washington and Beijing and the movement of supply chains, it is important for the country to remain competitive. He stated that there is still a lot of work to be done in this direction.

The governor of the Bank of Korea also said that currently the main attention of the financial regulator is focused on measures to combat price pressure. He said he expected inflation to slow down to 3% by the end of this year. Next week, the Bank of Korea will hold a meeting to decide on the rate. According to Rhee Chang-yong, the upcoming decision will focus on inflation rather than growth and other factors. At the same time, he noted that attention will be paid to the dynamics of the economy and financial stability, but these issues are not a priority for the bank.

This year, the Bank of Korea adheres to a strategy that provides for the constant possibility of raising rates. The last decision to increase this indicator was made by the financial regulator in January. The Bank is closely monitoring inflation. Also, at present, the factor influencing the strategy of the financial regulator’s actions is the growth of household debt.

The Bank of Korea began implementing a tight monetary policy in the early stages of recovery after the coronavirus pandemic. The financial regulator began raising rates in August 2021. The bank expects inflation to slow down from this month after it accelerated in September to 3.7% year-on-year, exceeding the consensus estimate.

Rhee Chang-yeon says that the core inflation rate in South Korea has remained at 3.3% for three consecutive months. In his opinion, the target of 2% will be reached next year. He also said that South Korea is currently in the shadow of impending uncertainty due to the lack of an accurate understanding of the future dynamic of oil prices and the development of the situation in the Chinese economy.

The commitment to the Bank of Korea’s tough policy in recent months has been in line with a global trend in which global financial regulators remain vigilant about the risks of rising inflation. For example, the Federal Reserve has stated that the benchmark in the United States is likely to remain high for longer than expected.

Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.