Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

South Korea steps up inflation fight with back-to-back rate hikes

Economy May 26, 2022 05:15AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: The logo of the Bank of Korea is seen on the top of its building in Seoul, South Korea, March 8, 2016. Picture taken on March 8, 2016. REUTERS/Kim Hong-Ji/File Photo

By Cynthia Kim and Joori Roh

SEOUL (Reuters) - South Korea's central bank on Thursday delivered back-to-back interest rate hikes and forecast further aggressive increases to wrestle consumer inflation down from 13-year highs.

The Bank of Korea raised its benchmark policy rate by a quarter of a percentage point to 1.75%, the highest since mid-2019, joining a global wave of tightenings as central bankers grapple with price spikes not seen in decades.

On Wednesday, New Zealand's central bank hiked by an aggressive 50 basis points.

The BOK upgraded its inflation forecast to 4.5% for this year, the highest since 2008 and more than double the bank's 2% target amid a surge in commodity prices driven by the Ukraine war and global supply chain snags.

"Our policy focus will be on price stability for some time, and it would be appropriate to say that (time frame) would be for a few months, for now," Governor Rhee Chang-yong said at a news conference after the six-member board's unanimous rate decision.

All but one of the 28 analysts polled by Reuters expected a hike.

Back-to-back interest rate rises by the BOK follow more than 100 cumulative basis points of hikes since August 2021 in one of the most forceful tightening campaigns ever by the bank.

A major concern is consumer inflation running at a 13-year high, which threatens to become entrenched, as a key measure of price expectations among South Koreans rose in May to its highest in nearly a decade.

"The Board sees it as warranted to conduct monetary policy with more emphasis on inflation for sometime," the BOK's policy statement said, which analyst Cho Yong-gu from Shinyoung Securities considers the strongest signal yet for additional rate hikes.

"I see that the bank will raise rates again both in July and August and am even considering changing the year-end forecast to 2.50% from 2.25% earlier, given the hawkish message seen from the overall statement," Cho said.

June futures on three-year treasury bonds dropped as much as 29 points to 105.43 following the hawkish policy signals.

Most analysts expect the BOK to take rates up to 2.25% by year end, after which many say it will then need to consider how quickly to apply the brakes amid slowing economic growth in China, its largest trading partner, and high household debt.

The U.S. Federal Reserve is forecast to take the key interest rate to 2.50-2.75% by year end, the effects of which will be closely watched globally, while in China authorities are seen easing policy to cushion a slowdown in the world's second largest economy.

Commenting on stagflation risks, Governor Rhee said growth is weaker but may not be near recessionary levels even as slower global demand is expected to hurt South Korea exports in the second half.

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.

"The upshot is that while the Bank should remain hawkish in the near term, it is likely to turn decidedly less so further ahead as the economy slows," said Alex Holmes, Asia economist at Capital Economics.

South Korea steps up inflation fight with back-to-back rate hikes
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email