South Korea’s Monetary Policy Board of the Bank of Korea decided today to raise the Base Rate to 1.75%, the highest since mid-2019 as expected. The move means the BOK has risen rates by 100 cumulative basis points since August 2021. With consumer inflation down from 13-year highs the Bank is in one of the most forceful tightening campaigns ever by the bank.
The Bank of Korea has risen rates from a record low of 0.5 percent amid uncertainty over the recent spike in COVID-19 cases.
South Korea Monetary Policy Decision (May 26, 2022)
It was the first-rate review after taking office in April for Governor Rhee Chang-yong. He and his monetary policy board voted to raise interest rates by a quarter of a percentage point to 1.75%, the highest since mid-2019. All but one of the 28 analysts polled by Reuters expected a hike.
Governor Rhee last week said the bank could consider big-step interest rate raises in coming months such as 50 basis point hikes, depending on data that will become available around July and August.
Inflation
The BOK raised its inflation outlook for this year to 4.5% from 3.1% before. Consumer inflation is at a 13-year high. A key measure of inflation expectations among South Koreans rose in May to its highest in nearly a decade.
“Inflation concerns have become more pronounced, with headline CPI growth hitting record levels and unemployment still at a record-low level,” It would be difficult for policymakers to extend the rate-hike cycle into 2023, as we expect the peak-out of inflation in the second quarter of this year. ” said Oh Suk-tae, an analyst at Societe Generale
The BOK expects the economy to expand 2.7% this year, down from its earlier forecast of 3.0% and slowing from an estimated 4.0% for 2021.
Source: Bank of Korea, Reuters
From The TradersCommunity News Desk