SEOUL- South Korea’s central bank raised interest rates by 25 basis points on Thursday, slowing the pace of tightening, though Governor Rhee Chang-yong said it was too early to discuss when to start cutting rates.
The Bank of Korea (BOK), trying to tame inflation without choking off economic growth, said it would continue to tighten monetary policy as needed even as it sharply downgraded its growth projections for 2023.
The bank raised its benchmark policy rate o 3.25 percent, the highest since 2012, after delivering a half-percentage point hike in October.
It forecast the South Korean economy would expand 1.7 percent in 2023, down sharply from a previous forecast for 2.1 percent growth, but stuck to this year’s 2.6 percent growth projection. It trimmed its 2023 inflation forecast to 3.6 percent from 3.7 percent.
The BOK is in the midst of its most aggressive policy tightening on record. It was a regional front-runner in withdrawing pandemic-era stimulus when it started raising rates in August 2021.
Since then, it has raised rates 275 basis points, delivering 50-basis-point hikes for the first time since the current monetary framework was introduced in 1999. It tightened by that amount in July and October.
Policymakers are trying to balance the need to curb inflation – at 5.7 percent versus a target of 2 percent – against rising debt, falling property prices and slumping exports.
“With growth slowing and inflation easing, we think there is a good chance this marks the end of the central bank’s tightening cycle,” said Gareth Leather, senior Asia economist at Capital Economics.
South Korea’s benchmark 10-year treasury bond yield dropped as much as 14.5 basis points after the rate decision and the release of its policy statement.
