MNI STATE OF PLAY: Bank Of Korea Rates Now Pre-Pandemic Level

The Bank of Korea on Friday raised its policy interest rate to the pre-pandemic level of 1.25% amid persistent concerns over inflation and financial imbalances as it keeps a close eye on the impact of the Omicron variant spread.

“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,” a statement released by the BOK said.

The rate hike was the second consecutive hike following November, see: MNI STATE OF PLAY: Korea CB Eyes Won, Prices On Rates(Rpt).

Friday’s decision shows the BOK has put fighting inflationary pressure and financial imbalances as the top priorities.

Ahead on rates, the BOK will likely take a wait-and-see attitude, while carefully monitoring the impact of U.S. Federal Reserve’s tapering and potential rate hikes as it monitors "global inflation movements and monetary policy changes in major countries."

“It is forecast that consumer price inflation will continue to run in the 3% range for a considerable time, exceeding the path projected in November, and above the mid-2% level for the year overall, "the BOK said. "Core inflation is forecast to run considerably above 2% this year.”

The BOK said that "the recovery of private consumption is forecast to pick up again while exports are expected to continue their solid trend of increase. GDP growth this year is projected to be around 3%, consistent with the forecast in November.”