MNI STATE OF PLAY: Bank Of Korea Governor Flags Rate Hike In Q1

The Bank of Korea as expected on Thursday raised its policy interest rate to 1.00% from 0.75% amid persistent concern over the inflation rate and financial imbalances.

BOK Governor Lee Juyeol has flagged a rate hike again in the first quarter of 2022, saying a decision depends on economic conditions but should not be ruled out. That means the BOK may raise the policy rate ahead of a presidential election in March.

"The board will continue to conduct monetary policy in order to sustain the recovery of economic growth and stabilize consumer price inflation at the target level over a medium-term horizon, while paying attention to financial stability," a policy statement issued by the BOK said.

"The board will appropriately adjust the degree of monetary policy accommodation as the Korean economy is expected to continue its sound growth and inflation to run above the target level for a considerable time, despite underlying uncertainties over the virus."

ECONOMIC OUTLOOK

Thursday's rate hike reflected the BOK's view that the economy will not deviate from a recovery path despite the spread of the coronavirus. Accumulated financial imbalances were also behind the rate hike.

The BOK raised its inflation rate forecast this year and 2022 to 2.3% and 2.0% from 2.1% and 1.5% made in August, respectively, indicating it sees the need to further raise the policy rate. South Korea's consumer price index rose 3.2% y/y in October for the highest level since January 2012.

"It is forecast that consumer price inflation will run considerably above 2%, exceeding the path projected in August, and then decline gradually, running at around 2% for 2022 as a whole," the BOK said.