MNI STATE OF PLAY: BOK Hikes 25bps As Inflation Seen Higher

The Bank of Korea raised its policy interest rate to 2.50% from 2.25% on Thursday, as policymakers continue their fight with the growing inflationary pressures, signaling further hikes down the line.

The 25-basis point hike, in line with the expectations of financial markets, was a step down from July's 50-basis point hike, but marks the first time the bank has raised the policy rate at four consecutive meetings.

The BOK indicated that the bank will likely raise the rate again in October, saying continued hikes were "warranted, as inflation is expected to remain high, substantially above the target level”, although they did accept there were downside risks to growth.

The BOK said it will "continue to conduct monetary policy in order to stabilize consumer price inflation at the target level over a medium-term horizon as it monitors economic growth, while paying attention to financial stability.”

Although inflation will remain the BOK's primary goal, it did note that "the pace of growth, financial stability conditions such as capital flows, monetary policy changes in major countries, and geopolitical risks” would be considered.

HIGHER CPI FORECASTS

The BOK's latest projections showed CPI in 2022 at 5.2% Y/Y, up from the 4.5% previously forecast, a level that would be highest since 1998. The 2023 CPI forecast was upped to 3.7% Y/Y from 2.9% previously.

GDP growth expectations were trimmed, with policymakers now looking for 2.6% in 2022, down from 2.7% previously, with 2023 growth now seen at 2.11% in 2023, compares to the prior estimate of 2.4%.

The BOK also noted the strength of the won, as the currency this week traded at around KRW1345, the weakest it has been against the U.S. dollar since 2009.

The Bank of Korea’s next policy-setting meeting is scheduled for Oct. 12.