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Free AccessMNI STATE OF PLAY: Bank Of Korea Notes Price Concerns In Hike
The Bank of Korea on Thursday raised its policy interest rate to 1.75%, a 25 basis point rise that signalled a continued focus on taming inflation.
“The Board sees it as warranted to conduct monetary policy with more emphasis on inflation for some time, as the Korean economy is expected to continue its recovery and inflation to run above the target level for a considerable time, despite underlying uncertainties in domestic and external conditions,” according to the policy statement released by the BOK, (See MNI STATE OF PLAY: S. Korea Cenbank To Hike To 1.75% On Prices).
The latest language was tweaked from the previous one, that said the board "will appropriately adjust the degree of monetary policy accommodation as the Korean economy is expected to continue its recovery and inflation to run above the target level for a considerable time, despite underlying uncertainties in domestic and external conditions.”
PRICES
Consumer prices in South Korea CPI rose 4.8% y/y in April, for the highest level since October 2008 when it also rose 4.8%. The BOK raised its consumer price index forecast this year to 4.5% from 3.1% and the forecast for 2023 to 2.9% from 2.0%, clearly indicating that the BOK is worried about higher inflation rates.
“it is forecast that consumer price inflation will remain high in the 5% range for some time, and run at the mid-4% level for the year overall, substantially above the February forecast of 3.1%. Core inflation is forecast to rise to the lower-3% level for the year overall,” the BOK said.
GROWTH VIEW LOWERED
But concern about growth were noted as BOK lowered its GDP forecast, while giving continued support to small and medium businesses. The BOK cut its GDP forecast this year to 2.7% from 3.0% and for 2023 to 2.4% from 2.5%.
“In a related set of actions, the Board has decided to raise the interest rate on Programs under the Bank Intermediated Lending Support Facility from 0.50% to 0.75%, effective May 26, 2022, except for the Support Programs for SMEs Affected by COVID-19 and Small Businesses, for which the interest rate will be left at 0.25%.”
The next policy-setting meeting is scheduled on July 14.
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.