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Bank Of Korea Raises Key Rate For Second Straight Time

bankofkorea july18 26may22 lt

The Bank of Korea lifted its key interest rate by a quarter point for the second straight meeting to tackle high inflation.

At the first rate setting meeting of Governor Rhee Chang-yong, the Monetary Policy Board decided to lift the Base Rate by 25 basis points to 1.75 percent from 1.50 percent.

"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," the bank said in a statement on Thursday.

The economy is forecast to grow 2.7 percent this year, somewhat below the February forecast of 3.0 percent. The central bank said factors like the worsening of external conditions such as China's lockdowns and the Ukraine crisis will act as downside risks to growth outlook.

The bank raised its inflation forecast for 2022 to 4.5 percent from 3.1 percent, citing rising raw material prices, deepening supply chain disruptions and the lifting of social distancing measures. In 2023, inflation is seen at 2.9 percent, instead of 2.0 percent projected earlier.

With price pressures set to remain elevated in the near term, the Bank is expected to continue hiking in quick succession over the coming months, Alex Holmes, an economist at Capital Economics, said.

While the Bank should remain hawkish in the near term, it is likely to turn decidedly less so further ahead as the economy slows, the economist noted. The tightening cycle will draw to a close this year, with the policy rate at 2.25 percent.

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