August 27, 2022
On Thursday, the South Korean central bank increased its benchmark interest rate by a quarter percentage point and sharply upped inflation predictions, signaling further policy tightening and driving up bond yields and the local currency.
Inflation control was still the Bank of Korea’s top priority, according to Governor Rhee Chang-yong. He noted that market expectations for the rate to reach 2.75% or 3.00% by year’s end “still look appropriate,” but cautioned that this would need to be reevaluated if growth unexpectedly slowed significantly.
Making sure inflation is under control will be beneficial for everyone in the medium- to long-term as long as our growth rate is reasonably sound in comparison to other nations, Rhee said at a news conference in Seoul.
The won rose while policy-sensitive futures on three-year treasury bonds fell as a result of the decision to tighten even more monetary policy.
In order to combat inflation, which is at a nearly 24-year high, the BOK increased its benchmark policy rate (KROCRT=ECI) by a quarter of a percentage point, or 2.50%, and resumed normal-sized 25 basis point increments.
In a Reuters poll of 36 analysts, all but one predicted that the bank would opt for the quarter-point increase, while one predicted a half-point increase. View More
The BOK increased its inflation prediction for this year from 4.5% to 5.2%, which would be the highest rate since 1998.
Additionally, it reduced its estimates for economic growth, dropping them from 2.7% to 2.6% this year and 2.1% in 2023.
The BOK has increased interest rates by a total of two full percentage points since August of last year, making it one of the earliest central banks in Asia to give up monetary support used during the pandemic.
Investors and analysts are looking for hints on just how high rates will go as officials seek to strike a balance between containing inflation and assisting slowing economy, even if the Fed’s signals remain unmistakably hawkish and board members were unanimous in their decision.
Source: Reuters
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