Image: Reuters Berita 24 English - As expected, South Korea's central bank raised its key interest rate by a quarter of a percentage poi...
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| Image: Reuters |
Berita 24 English - As expected, South Korea's central bank raised its key interest rate by a quarter of a percentage point on Thursday. This was done to keep inflation in check and keep money from leaving the country as the U.S. Federal Reserve prepares for more rate hikes.
The Bank of Korea raised its benchmark policy rate by 25 basis points, bringing it to 2.50 percent. This was a return to normal-sized increases after an unprecedented 50-basis point hike in July, which was done to stop inflation from reaching a level that hadn't been seen in almost 24 years.
In a poll by Reuters, 35 of the 36 analysts thought the bank would raise rates by a quarter point. One analyst thought the bank would raise rates by a half point.
The bank also raised its prediction for inflation this year from 4.5% to 5.2%. This would be the fastest rate since 1998. However, it lowered its prediction for economic growth this year from 2.7% to 2.6%.
In 2023, it thinks growth will slow to 2.1%.
Three-year treasury bond futures for September fell as much as 0.25 point to 104.41 after the news came out.
The BOK was one of the first central banks to stop using monetary stimulus during the pandemic. Since August of last year, it has raised rates by two full percentage points.
South Korean leaders are now trying to stop the fastest rate of inflation in more than 20 years without crashing the economy.
"Economic growth is expected to slow in the second half of the year, and inflation has probably already reached its peak," said Gareth Leather, an economist at Capital Economics, in a note released soon after the rate decision.
"Weaker economic growth, caused by the slowdown in the global economy and the drag from recent policy tightening, should cause price pressures to ease."
Economists had different ideas about where rates would be at the end of the year. Three of the 36 people polled thought the central bank would stop at 2.50 percent, 50 percent said 2.75 percent, 14 said 3.00 percent, and one said 3.25 percent.
At 2:10 GMT, Governor Rhee Chang-yong will talk to the press.
