MNI STATE OF PLAY: Bank Of Korea Poised For Q2 Rate Hikes

The Bank of Korea is expected to hike interest rates in the second quarter as the U.S. Fed is expected to tighten after earning a pause at Governor Lee Ju-yeol's last board meeting with recent inflation data in-check.

On Thursday, the BOK left its policy interest rate unchanged at 1.25%, but could move again as April amid lingering high inflation rate and housing prices, MNI understands.

The decision reflected that the BOK's aim to monitor inflation above target, high household debt and the impact of rate hike by the U.S. Federal Reserve in March on global markets with "inflation to run above the target level for a considerable time, despite underlying uncertainties over the virus, the statement said, see: MNI STATE OF PLAY: Inflation Dip Allows Bank Of Korea A Pause.

INFLATION OUTLOOK RAISED

The BOK raised its inflation rate forecast this year to 3.1% from 2% made in November but left its GDP forecast unchanged at November’s 3.0%.

Global and domestic economic conditions will determine the timing of future policy action, the BOK said.

“In this process the Board will judge when to further adjust the degree of accommodation while thoroughly assessing developments related to COVID-19, the risk of a buildup of financial imbalances, the effects of the Base Rate raises, monetary policy changes in major countries, and the trends of growth and inflation,” the BOK said.

“Looking ahead, it is forecast that consumer price inflation will run substantially above 3% for a considerable time, exceeding the path projected in November, and run at the lower-3% level for the year overall. Core inflation is forecast to rise to the mid-2% level this year,” it said.

PREVIOUS HIKE

The BOK raised the policy rate to 1.25% in January for the second consecutive hike following November 2021 and the policy rate returned to the pre-pandemic level for the first time in two years and nine months.

Governor Lee Ju-yeol's second four-year term ends in March before the next board meeting, and he had earlier said that current interest rates need to go higher, a job that will fall to the next governor.

"I don't think 1.5% could be considered as tightening," Lee said in a press briefing after the previous policy decision, adding "(We) raised it today, but I believe it's still accommodative."