The central bank of South Korea has announced a half-point increase in interest rates to slow the country’s inflation, which is now growing at its highest rate in 24 years.
Highlights:
- The benchmark interest rate of the Bank of Korea was raised by 50 basis points to 2.25 percent.
- In a Reuters news agency survey, 27 of 32 judges predicted that the bank would increase interest rates by 0.5 percentage points.
- The majority of judges have decided that South Korea’s policy rate should be raised from 2.25 percent to 2.75 percent.
The central bank of South Korea has announced a significant half-point increase in interest rates to slow an affectation that is expanding at its highest rate in 24 years.
The Bank of Korea increased its benchmark interest rate by 50 basis points to 2.25 percent on Wednesday, the largest rise since the bank endorsed the present framework in 1999.
In a Reuters news agency poll, 27 out of 32 judges thought the bank would raise interest rates by half a point, while the remaining five thought they would increase rates by a quarter of a point.
Following unusual rate increases in recent weeks from other significant central banks, such as the Reserve Bank of New Zealand and the Bank of Canada, the larger-than-usual increase is the latest.
In the last month, the US Federal Reserve increased its key rate by 75 basis points, and similar-sized changes are expected to be made going forward.
According to the majority of judges, South Korea’s policy rate will increase from 2.25 percent in May to 2.75 percent by the conclusion of this period. This time, the BOK anticipates a 2.7% increase in thriftiness.
Bank of Korea’s policy rate
The Bank of Korea (Bok) would increase its policy rate (KROCRT=ECI) by 25 basis points to 1.75 percent, according to all but one of the 28 economists surveyed from May 17 to 23.
It was one of the first central banks to begin hiking interest rates during the pandemic, and it has already increased the base rate by an additional 100 basis points since August 2021.
By the consensus forecast of 17 out of 28 economists, the Bok will maintain a pattern from May with two further rises, one each quarter, pushing rates up to 2.25 percent by year’s end.
Seven said 2, one said 1, and three predicted that the period would conclude at 2.50. Rates have reached a level last seen in the second half of 2014 thanks to the maturity perspective, which has a difference of more than 25 basis points from the April bean.
However, there is no consensus that rates will increase beyond that through the expiration of this period.
Oh Suktae, an economist at Societe Generale, stated that it would be risky for policymakers to continue raising interest rates beyond 2024 since they expected the peak in affectation in 2022.
Interest rates at the US Federal Reserve and South Korea effects
South Korean affectation is expected to average 3.3 this year, but it will decline to 2.0 in 2024, according to a separate bean from last month.
Nine economists gave a rate view for the end of 2024, four economists gave a rate view for the end of 2024, and the remaining economists gave a rate view of 2.0 or below.
The Bok is under some pressure to continue increasing rates since the world’s largest central bank is also doing the same. However, this time the palm is down.
The U.S. Federal Reserve will raise the important interest rate to 2.50-2.75 by the end of the year as opposed to the predicted 2.00-2.25 only one month before.
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