Bank of Korea Slows Rate Hike By 25 BPS

South Korea’s central bank in Seoul raised interest rates by a more modest 25 basis points on Thursday, slowing the pace of policy tightening as it tries to control inflation without hampering economic growth.

The BOK is amid its most aggressive policy tightening, having been a front-runner in withdrawing during the pandemic when it started raising interest rates in August 2021.

Since then, a total of 275 basis points of its rates had been raised, resulting in bigger 50-basis-point rate hikes for the first time since the current monetary framework was introduced in 1999. It increased rates by that amount in July and October.

Policymakers are working to balance the curb above the running 5.7% inflation target by building debt, easing property prices, and falling experts. The central bank aims to keep inflation at 2%.

South Korean consumers are the most indebted, property prices fell at their sharpest rate in at least two decades in October, while exports suffered their biggest drop in over two years.

The slowdown in the tightening pace was also due to a rebound in the local currency. In line with the aggressive U.S. monetary tightening of the dollar this year, many Asian central banks opted for hike rates to align with the Fed and avoid local currencies from weakening too much against the greenback, risking causing net outflows.

The Won has rebounded more than 7% from a 13-year low against the dollar touched in late October. 

The BOK’s 25 basis point hike is smaller than the rates made by some of its regional peers, including central banks in the Philippines and New Zealand pushing for bigger rate hikes after the Fed’s four consecutive 75 basis point rate increases.

Source: Inquirer.net