S.Korea’s central financial institution delivers back-to-back fee hikes amid inflation worries By Reuters


© Reuters. FILE PHOTO: The emblem of the Financial institution of Korea is seen on the highest of its constructing in Seoul, South Korea, July 14, 2016. REUTERS/Kim Hong-Ji

By Cynthia Kim and Joori Roh

SEOUL (Reuters) – South Korea’s central financial institution raised its benchmark fee again to pre-pandemic ranges on Friday to stem inflation dangers within the recovering economic system and signalled it might tighten additional as coverage nonetheless stays ‘accommodative.’

Financial institution of Korea Governor Lee Ju-yeol maintained his hawkish tone and stated there’s a have to additional increase rates of interest if present progress momentum is retained.

The BOK’s financial coverage board on Friday lifted borrowing prices by 25 foundation factors to 1.25%, the very best since March 2020, a transfer anticipated by 25 of 35 analysts in a Reuters ballot.

Again-to-back fee hikes by the BOK, not seen since 2007, comes as world policymakers from the U.S. Federal Reserve to the U.Okay. transfer to finish emergency stimulus to comprise speedy shopper worth rises.

In South Korea surging property values and family debt have raised strain on policymakers to behave. The BOK has been on the forefront of world stimulus withdrawal as many central banks begin to shift away from the view that quicker inflation that got here as a byproduct of the pandemic is transitory.

“Taking the speed to 1.50% nonetheless cannot be considered as tight (financial coverage),” however must be seen as scaling again the extent of coverage easing, Governor Lee stated at a information convention on Friday.

Having raised rates of interest thrice since August final 12 months, a Reuters ballot confirmed the BOK is anticipated to proceed its coverage tightening cycle with charges tipped to succeed in 1.50% by the third quarter of this 12 months. [nL4N2TR26V]

The Federal Reserve has signalled its intention to lift charges thrice this 12 months, the consequences of which can be carefully watched globally, whereas in China authorities are seen easing coverage to cushion a slowdown on this planet’s second largest economic system.

MORE TIGHTENING

The March futures on the three-year treasury bonds fell as a lot as 0.40 level to 108.25 after Lee stated additional fee hikes could also be vital.

Uncertainties on the coverage entrance this 12 months embrace Governor Lee’s time period that ends in March, which coincides with the nation’s presidential election slated for a similar month.

It’s unclear whether or not President Moon Jae-in will identify a brand new governor earlier than the election or depart that call to the subsequent chief of the nation.

“This is able to most likely be the final fee hike throughout Lee’s time period, although the markets are centered on Lee’s remarks that harassed the BOK’s coverage tightening is ongoing,” stated Cho Yong-gu, fixed-income analyst at Shinyoung Securities, who sees the bottom fee to succeed in 1.75% by the primary half of 2023.

The BOK stated shopper inflation will run within the 3%-range for “a substantial time,” exceeding the two% projection for this 12 months made in November.

Hovering inflation has been ramping up strain on coverage makers to behave, as shopper inflation for the entire 12 months of 2021 surged to 2.5%, the quickest since 2011.

Analysts now see the present tightening cycle slowing down within the months forward, as policymakers assess the outlook for world progress whereas international locations navigate a contemporary wave of the Omicron variant of the coronavirus.

The BOK expects the economic system to increase 3% this 12 months, slowing from an estimated 4% in 2021.

($1 = 1,188.2800 received)

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