South Korea Raises Interest Rates Due to Household Debt and Inflation Concerns | Business Wire Business and Economy

The Bank of Korea raised borrowing costs by 25 basis points to 1%.

As widely expected, the Bank of Korea raised interest rates and revised the inflation outlook on Thursday, as concerns about rising household debt and prices indicate further policy tightening next year.

The Monetary Policy Committee of the Bank of Korea raised borrowing costs by 25 basis points to 1%-in a Reuters survey, 29 out of 30 analysts expected this. An analyst believes that the bank raised interest rates by 50 basis points to 1.25%.

It also raised its inflation forecast for next year to 2% from the previous 1.5%, indicating the need for further interest rate hikes amid concerns that price pressures will be faster and longer lasting.

After the bank issued a revised forecast, the three-year Treasury bond futures rose 0.14 points, while the benchmark KOSPI and the Korean won fell.

As central banks of various countries began to cut stimulus measures during the pandemic to curb accelerating inflation and growing financial imbalances, South Korea has been at the forefront of withdrawing from global stimulus plans.

After raising interest rates for the first time in nearly three years in August, consumer inflation in Asia’s fourth-largest economy accelerated in October to a 10-year high.

Thanks to strong exports of chips and petrochemical products, the economy grew by 4% in the third quarter. Compared with the downturn in the pandemic last year, economic growth was flattered.

As predicted in August, the bank still believes that the economy will grow by 4% this year and 3% in 2022.

Rising price pressures and strong growth prompted most analysts surveyed by Reuters to come up with their forecasts. Analysts now expect interest rates to reach 1.25% in the first quarter and 1.5% by the end of 2022.

‘Financial imbalance’

“Due to strong growth and price pressures building up, interest rates must be raised in November. Yoon Yeo-sam, an analyst at Meritz Securities, said that he expects to raise interest rates again early next year to resolve financial imbalances.

A complication to this is the recent surge in daily COVID-19 cases, which reached more than 4,000 for the first time on Wednesday, casting a shadow over the prospects for the next few months.

In August, the Bank of Korea became the first major Asian central bank to increase borrowing costs since the beginning of the COVID-19 pandemic.

New Zealand raised interest rates for the second time in two months on Wednesday, and it is expected that the US Federal Reserve will turn to tightening to contain price pressures.

All eyes are now focused on President Li Zhulie’s press conference at 02:20 GMT, when investors will seek guidance on the timing of the next policy tightening.

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