South Korea’s central bank lifts benchmark rate to cool inflation

Governor Rhee Chang-yong says taming worth progress stays the central financial institution’s first precedence.

Pedestrians stroll previous the Financial institution of Korea Museum on the central financial institution headquarters in Seoul, South Korea, November 2021 [SeongJoon Cho/Bloomberg]

South Korea’s central financial institution has lifted its benchmark rate of interest by 1 / 4 share level whereas elevating its inflation forecast for the yr.

The most recent hike by the Financial institution of Korea (BOK) on Thursday takes the important thing rate of interest to 2.5 %.

Governor Rhee Chang-yong mentioned cooling rising costs would stay the BOK’s precedence, describing as “applicable” market expectations that the important thing charge might attain 2.75 or 3 % by the yr’s finish.

“So long as our progress charge stays comparatively sound in contrast with different international locations, ensuring inflation is beneath management first could be useful for everybody within the medium- to long-term,” Rhee mentioned at a information convention in Seoul.

Final month, the BOK raised the important thing charge by half a share level, the largest enhance because the financial institution adopted its present framework in 1999.

The BOK raised this yr’s inflation forecast to five.2 %, up from 4.5 %, which might be the quickest in nearly 1 / 4 of a century. Inflation in Asia’s fourth-largest financial system hit 6.3 % in July, the best charge since November 1998.

The central financial institution additionally reduce its 2022 financial progress forecast to 2.6 %, down from 2.7 %, predicting progress to sluggish additional to 2.1 % in 2023.

The BOK started elevating rates of interest earlier than most central banks within the area, and buyers are looking for clues about how excessive charges might go as policymakers attempt to stability the necessity to cool inflation and assist slowing progress.

“With the a lot higher-than-expected inflation forecast for subsequent yr, we can not rule out the likelihood that the BOK might proceed elevating rates of interest in 2023,” mentioned Paik Yoon-min, a fixed-income analyst at Kyobo Securities.

“Till now, the consensus for the year-end charge was at 2.75 % however with the revision of forecasts, I feel the market consensus might change to three %.”