Bank of Korea Raises Rate Back to Pre-Pandemic Level

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By Kwanwoo Jun
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South Korea’s central bank has brought its base rate back to pre-pandemic levels, raising it for the third time in less than half a year to fight inflation.

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The Bank of Korea on Friday raised its benchmark seven-day repurchase rate by 25 basis points to 1.25%. The bank had raised rates in August and November.

Sixteen of the 19 analysts surveyed by the Wall Street Journal had forecast a rate hike in January, while the remaining three expected a third rate hike in February from BoK.

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Most analysts plan to hike rates further later in 2022 as the bank seeks to help calm the red-hot housing market amid lower lending costs.

The BoK – like other major central banks – is dialing back the pandemic-era stimulus as the economy recovers and inflation accelerates at a faster rate than expected.

Inflation in South Korea averaged 2.5% in 2021, exceeding the bank’s forecast of 2.3%. It has remained above the bank’s target of 2.0% for nine consecutive months.

BOK Governor Lee Joo-yol has warned that inflation could be above the bank’s earlier forecast of 2.0% for 2022.

After a 0.9% contraction in 2020, the bank forecasts South Korea’s economy to expand by 4.0% in 2021. The bank expects a growth of 3.0% in 2022.

Write to Kwanwoo Jun at [email protected]

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