MNI STATE OF PLAY: Bank Of Korea Signals More Rate Hikes Ahead

The Bank of Korea on Wednesday hiked its policy rate by 50 basis points to 2.25% and kept the focus on inflation amid slower economic growth.

The 50-basis point rate hike is the largest hike since 1999 when the BOK has established the current rate decision system. The next policy meeting is scheduled for Aug. 25, (See MNI STATE OF PLAY: Bank Of Korea To Hike 50bps As Prices Bite).

STRONG STATEMENT

“The Board 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,” the BOK statement said, indicating it may raise rates again in August.

“The Board judges that a pre-emptive policy response to prevent the entrenchment of high inflation is of greater importance for some time as high inflation is continuing and becoming broad-based while short-term inflation expectations are rising sharply, although economic downside risks have increased at home and abroad.”

The BOK's rate hike is also aimed curbing a weaker currency, though this was not explicitly mentioned in the statement, amid active rate hikes by the Federal Reserve.

INFLATION FOCUS

“It is forecast that consumer price inflation will remain high at above 6% for some time and run substantially above the May forecast of 4.5% for the year overall. Core inflation is forecast to remain elevated at 4% or higher for a considerable time," the statement said.

“Considering inflation and economic conditions, though economic downside risk is indeed high, uncertainties remain elevated, and thus the Board sees it as important at this time to curb the spread of inflation expectations through a 50-basis-point rate hike to prevent acceleration of inflation.”

The BOK said it has also raised the interest rate on programmes under the Bank Intermediated Lending Support Facility to 1.00% from 0.75% , effective July 13, 2022. It left the support programmes for SMEs affected by COVID-19 at 0.25%.”