(2nd LD) BOK raises interest rate to 1.5% amid rising inflation
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SEOUL, April 14 (Yonhap) — South Korea’s central bank on Thursday raised its key interest rate by a quarter of a percentage point, to the highest level in about three years, to stem rising pressure inflationary as the ongoing war in Ukraine has sent oil and major commodities prices even higher.
The Bank of Korea’s (BOK) monetary policy board convened a rate-setting meeting earlier in the day and voted to raise the benchmark repo rate to 1.5%, according to the central bank. The central bank raised the interest rate to the highest level since July 2019.
“Currently available information suggests that inflation has picked up while the global economic recovery has moderated somewhat, affected by the Ukraine crisis,” the BOK said in a report on the decision.
“The board will judge when to further adjust the degree of accommodation while thoroughly assessing developments related to COVID-19, the risk of a build-up of financial imbalances, monetary policy changes in major countries, geopolitical risks and growth and inflation trends,” he added.
It is the fourth rate hike – a combined hike of 1 percentage point – since August last year, when the BOK carried out its first rate hike in the pandemic era after maintaining the borrowing costs at record highs for about two years to weather the pandemic.
In an online press conference, Joo Sang-yeong, acting chairman of the monetary policy council, said it was inevitable that the rate would be hiked again this time due to the possibility that the war in Ukraine puts additional upward pressure on inflation.
“We had no choice but to pay more attention to upside inflation risks,” he said. “Going forward, we will also look at downside risks to economic growth broadly.”
Joo chaired the board meeting as Lee Ju-yeol retired as governor at the end of last month. It was the first time that a member of the monetary policy council led a rate-setting meeting followed by a press briefing to explain the policy orientations.
Thursday’s unanimous rate-hike decision came amid lingering concerns about rising inflationary pressure caused by prolonged supply chain disruptions, a rebound in demand from the pandemic and rising oil and commodity prices even higher due to the ongoing Russian-Ukrainian war.
Consumer prices in South Korea jumped 4.1% in March from a year earlier, the fastest gain in more than 10 years. Prices accelerated after rising 3.7% year-on-year in February.
The country’s economy, the fourth-largest in Asia, is enjoying a robust recovery from the pandemic-induced slowdown on the back of strong exports, but faces heightened economic uncertainties at home and abroad amid the pandemic. pandemic, the war in Ukraine and the lockdowns caused by the pandemic in major Chinese cities.
In its latest projections made in February, the BOK predicted consumer prices could rise 3.1 percent this year from a year earlier. He expected the economy to grow 3% this year.
Joo told reporters that prices could rise at a faster pace than the February forecast and the country’s economic growth could also be slower than the previous forecast. But he ruled out the possibility of the country experiencing stagflation, a combination of slowing growth and high inflation.
He also noted that the momentum of economic growth, especially exports, has not been significantly undermined by rate hikes announced since August last year.
A series of rate hikes in recent months, however, has raised concerns about the deepening financial burden on those who have taken out loans to weather the challenges of the pandemic and buy homes amid rising prices. price.
It is estimated that the rate hikes will result in about 13 trillion won in additional interest payments for those with loans.
Thursday’s rate-setting meeting drew attention as it came after the US Federal Reserve announced its first rate hike since 2018 in March to rein in inflation in what appears to be only the onset of bigger and stronger rate hikes in the future.
The BOK has hinted at further rate hikes in the coming months to contain inflation and household indebtedness despite lingering fears that excessive rate hikes could dampen economic growth.
BOK government candidate Rhee Chang-yong stressed the need to determine the direction of monetary policy after analyzing how existing risks, including the Ukraine crisis and the pandemic, will affect economic growth and inflation.
Rhee also expressed concerns that inflation could top the BOK’s earlier forecast of a 3.1% rise in the first quarter, saying it’s hard to predict how things will play out in the second half. due to uncertainty.
He was appointed governor of the BOK last month by President-elect Yoon Suk-yeol. He has yet to take office as he prepares for a parliamentary confirmation hearing scheduled for Tuesday.