BOK hikes rates for first time in 3-1/2 years, signals more

SEOUL: South Korea’s central bank raised its benchmark interest rate for the first ‌time in three-and-a-half years on Thursday and flagged more to come, as brisk growth in Asia’s fourth-largest economy fanned inflation risks.

The seven-member monetary policy board at the Bank of Korea voted to raise the seven-day repurchase rate by 25 ​basis points to 2.75% to stabilise a slumping won and counter persistent inflationary pressure.

In a ​statement released shortly after, the bank also said the growth rate for South ⁠Korea is expected to “considerably exceed” the bank’s May forecast of 2.6%, while inflation will remain high ​for “a considerable time.”

“There are good reasons to expect further tightening over the coming months,” Capital Economics economist Gareth ​Leather wrote in a note after the rate decision was announced.

“Although the continued weakness in private consumption – retail sales are falling in real terms – remains a concern, we still expect growth to reach an above-consensus 4.0% this year.”

The dollar-won ​rate remained muted on the widely expected decision. The benchmark KOSPI was off 7%, mostly due to ​renewed selling in chipmakers’ stocks.

The economy has been rebounding faster than expected this year, thanks to a boom in semiconductor ‌exports ⁠and investment, even as the local currency remains pressured, with the won weakening 3.4% against the greenback.

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Gross domestic product expanded 1.8% in the first quarter, the fastest pace in nearly six years, prompting the government to raise growth forecasts to a five-year high of 3.0% for this year on the back of ​a global semiconductor boom.

The rate ​hike aligns the ⁠BOK closely with regional neighbour the Bank of Japan, which recently raised its own benchmark rate to a 31-year high.

Central banks in Australia, New Zealand, Indonesia and ​the Philippines have also tightened their monetary policies.

With the headline inflation figure ​at a 2-1/2-year high ⁠in South Korea, a majority of analysts see the BOK delivering at least one more rate hike before the end of this year to take the policy rate to 3.00%.

Median forecasts showed the BOK would ⁠raise its ​key rate to 3.25% in the first quarter of 2027 ​and keep it there until at least the end of next year.

Governor Shin Hyun Song will hold a press conference at 0210 ​GMT, which will be livestreamed via YouTube.