S.Korea central bank holds rates, flags a hike in November

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SEOUL (Businesshala) – South Korea’s central bank kept interest rates stable on Tuesday, giving relief after its first rate hike in nearly three years in August, but as of November to curb rising inflation and domestic debt. More strictness can be done as soon as possible.

FILE PHOTO: The Bank of Korea logo is seen on the top of its building in Seoul, South Korea, July 14, 2016. Businesshala/Kim Hong-ji/File photo

The Bank of Korea kept benchmark interest rates steady at 0.75%, as widely expected in a Businesshala poll, but raised inflation forecast to a “mid-2% level” from 2.1% in August. The inflation target of the central bank is 2%.

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In a rare comment on inflation, President Moon Jae-in said during a cabinet meeting on Tuesday that the government should do everything possible to stabilize consumer prices.

During a news conference, Governor Lee Joo-yol said, “The bank may consider raising interest rates further at the next meeting, should the economic recovery proceed as expected, while changes in internal and external conditions will affect the domestic economy and inflation.” They affect.” A hoarse tone adopted since May.

South Korea’s three-year Treasury bond futures fell more than 0.40 points after Lee’s comments.

Asia’s fourth-largest economy grew a revised 6.0% in the second quarter from a COVID-induced slowdown a year ago, the fastest annual expansion in a decade thanks to strong exports of chips and petrochemical products.

While the recent spike in daily COVID-19 cases has clouded the short-term outlook, the central bank is keen to build on a rise in private sector credit, a red-hot asset market and inflationary pressures.

Annual consumer inflation reached 2.5% in September, remaining above BoK’s target for the sixth month.

Most analysts in a Businesshala poll had expected BoK to hike rates at its next rate-setting meeting on November 25 and then raise them by 25 bps, bringing the rate to 1.25% by the end of 2022.

“Governor Lee’s comments were a little more harsh than expected,” said Cho Yong-gu, a fixed income analyst at Shinyong Securities.

“I expect BOK to raise rates in November and have the next one coming around next year (3rd quarter), but I’m looking at bringing it forward after today’s press conference.”

In August, BOK became the first major Asian central bank to raise borrowing costs since the COVID-19 pandemic began, keeping it ahead of the curve as central banks around the world seek to dial back emergency stimulus.

The US Federal Reserve has indicated it will start reducing its bond-buying as soon as November and the Bank of England has said it may raise interest rates before the end of this year.

Suh Young-kyung and Lim Ji-won, who have been on the flamboyant side of the monetary policy debate, were the only board members to vote on raising rates on Tuesday.

Additional reporting by Choonsik Yu, Jihoon Lee; Editing by Ana Nicolasi da Costa

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