Bank of Korea raises benchmark rate, signals more tightening

South Korea’s central bank on Thursday raised its benchmark interest rate and said it would tighten its policy even further as it continues to fight high inflation.

The Bank of Korea raised its seven-day benchmark repurchase rate by 25 basis points to 1.75% after an increase of the same size at the previous April meeting.

The fifth rate hike since August 2021 coincided with The Wall Street Journal’s survey of 26 analysts, most of whom had projected a quarter-percentage-point rate hike.

The bank sharply raised its inflation forecast for this year to indicate that further rate hikes are approaching and cut its growth outlook.

The bank now predicts that inflation will average 4.5% by 2022, more than its February projection of 3.1%. Gross domestic product is expected to grow 2.7% this year, compared to its previous 3.0% growth forecast.

South Korea’s economy grew by 4.0% in 2021.

Rising commodity prices due to bottlenecks in world supply, which are exacerbated by the Ukrainian war, and stimulus policies have contributed to a rapid rise in prices.

Inflation in South Korea peaked at 13 years in April, when the consumer price index rose 4.8% from a year earlier, well above its annual target of 2, 0%. South Korea’s inflation rate averaged 2.5% in 2021.

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