The Bank of Korea (BOK) added to a wave of global action against inflation by yesterday raising its key interest rate, brushing aside concerns about a leadership vacuum at the bank and global risks to the export-dependent South Korean economy.
The central bank raised its seven-day repurchase rate by a quarter percentage point to 1.5 percent in the board’s first-ever decision without a governor in place.
While the bank warned that the economy would grow less than previously forecast this year, the decision highlights the more pressing sense of urgency among South Korean policymakers to tackle inflation fueled by Russia’s war in Ukraine.
Photo: EPA-EFE
The bank last week said the rate is likely to remain in a 4 percent range for the foreseeable future.
“Big changes have happened since the February meeting,” Acting BOK Monetary Policy Committee Chairman Joo Sang-yong told a news briefing after the decision. “We concluded the existing inflationary pressures could go on for longer than expected due to the Ukraine situation. So despite the vacancy of the governor position, we had no choice but to respond.”
The bank raised rates three times between August last year and January to tackle soaring asset prices and inflation, before standing pat in former BOK governor Lee Ju-yeol’s final meeting in February.
The nominee for governor, Rhee Chang-yong, has made clear that he sees inflation as a pressing concern ahead of a parliamentary hearing on Tuesday.
Assuming Rhee is confirmed in the role, as is widely expected, he might continue with the push toward normalization, starting as early as the next policy meeting on May 26.
Central banks worldwide are struggling to cool consumer prices fueled by COVID-19 pandemic-era stimulus and exacerbated by Russia’s invasion of Ukraine.
Singapore also took action yesterday, using an aggressive dual move to tighten its currency-focused policy for the first time since 2010.
The Monetary Authority of Singapore (MAS), which uses exchange rates as its main policy tool, said it is taking steps to strengthen the Singaporean dollar, which would help slow inflation momentum as global shocks feed into local prices.
“This tighter monetary policy stance, which builds on the policy moves in October 2021 and January 2022, will slow the inflation momentum and help ensure medium-term price stability,” the bank said in the statement.
“The fresh shocks to global commodity prices and supply chains are adding to domestic cost pressures, and will bring MAS core inflation to a significantly higher level than its historical average through 2022. Underlying inflationary pressures remain a risk over the medium term,” it said.
Core inflation, which strips out costs of private transport and accommodation, would probably rise 2.5 to 3.5 percent this year compared with the bank’s January forecast for 2 to 3 percent.
All-items inflation would this year likely be 4.5 to 5.5 percent, versus earlier expectations of 2.5 to 3.5 percent.
The bank said in a policy statement that it expects the Singaporean economy to grow “above-trend” for a second year this year, with the output gap turning “slightly positive” and GDP fully recovering from the pandemic.
The central bank reaffirmed the Singaporean government’s 3 to 5 percent growth forecast for this year, after a 7.6 percent expansion last year.
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