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South Korea's central bank raises rates as price pressures mount

Kamis, 25 November 2021 / 08:11 WIB
South Korea's central bank raises rates as price pressures mount
ILUSTRASI. The Bank of Korea's lifted borrowing costs by 25 basis points to 1.00%

Sumber: Reuters | Editor: Anna Suci Perwitasari

KONTAN.CO.ID - SEOUL. South Korea's central bank raised its policy rate on Thursday, as widely expected, as concerns about rising household debt and inflation offset uncertainty around a resurgence in COVID-19 cases.

The Bank of Korea's monetary policy board lifted borrowing costs by 25 basis points to 1.00% - a move expected by 29 of 30 analysts in a Reuters poll. One analyst saw the bank raising interest rates by 50 basis points to 1.25%.

South Korea has been at the forefront of global stimulus withdrawal as central banks start to trim pandemic-era stimulus to contain quickening inflation and growing financial imbalances.

After raising interest rates for the first time in nearly three years in August, consumer inflation in Asia's fourth-largest economy accelerated further to the highest in nearly a decade of 3.2% in October, far above the bank's current annual forecast of 2.1%.

The economy grew 4.0% in the third quarter, thanks to robust exports of chips and petrochemical products and flattered by the comparisons to last year's pandemic slump.

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Mounting price pressures and firm growth have prompted most analysts polled by Reuters to bring forward their forecasts. Analysts now see the interest rate reaching 1.25% in the first quarter and 1.50% by end-2022.

"A rate hike has to be carried out in November as growth is strong and price pressure is building up. One more hike is expected early next year to address financial imbalances," said Yoon Yeo-sam, an analyst at Meritz Securities.

One complication to that is a recent spike in daily COVID-19 cases, which reached over 4,000 for the first time on Wednesday, clouding the outlook for the months ahead.

The BOK in August became the first major Asian central bank to start raising borrowing costs since the COVID-19 pandemic started.

New Zealand on Wednesday raised interest rates for the second time in two months and the U.S. Federal Reserve is expected to switch to tightening to contain price pressure.

All eyes are now on Governor Lee Ju-yeol's news conference at 0220 GMT, where investors will look for guidance on the timing of next policy tightening.

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