Will BOK take ‘big step’ to tame inflation?
BOK expected to raise interest rates by 25 basis points this month
While it is almost certain that the Bank of Korea (BOK) will raise its key interest rate during this week’s policy meeting scheduled for Thursday, aiming to curb the country’s rising inflation, the question for now is whether the central bank will take a “big step,” or an interest rate hike of over 50 basis points this month.
The possibility of a big-step increase for the country’s benchmark rate stems from a recent comment by BOK Governor Rhee Chang-yong, who took the central bank chief position late last month, saying he does not completely rule out the option of bigger interest rate increases over the course of this year. “It would not be appropriate for now to say whether the bank could rule out the big-step option in the coming months. The decision (about the big-step) would have to be made, after comprehensively examining the data
that will be available around July and August,” Governor Rhee told reporters early last week, hinting that the 50-basis-points increase remains as one of the central banks’ available policy options during the rest of this year.
Despite the governor’s ambiguous comment, market watchers’ general view is that the central bank will raise the rate by 0.25 of a percentage point, or 25-basis-points, at this month’s policy meeting, stoking the country’s base interest rate to 1.75 percent.
“Given the strong inflationary
pressure, BOK’s monetary policy meeting in May will also adopt an additional benchmark interest rate hike of 0.25 of a percentage point in a unanimous manner,” Ahn Ye-ha, analyst at Kiwoom Securities, said.
The analyst does not think that the BOK will take a big-step increase this time around, yet the central bank will speed up the interest rate hikes over the course of the remaining year.
“The BOK could additionally raise interest rates in July and in August, if the price index continues to be at a high level,” the analyst added.
KB Securities and SK Securities also forecast that the central bank will raise the rate by 25-basispoints at this month’s policy meeting. Yet, SK Securities forecast the central bank could take the bigstep increase in the third quarter, instead of taking two consecutive increases of 25-basis-points in July and in August. Prior to the new BOK chief taking office late last month, the central bank raised the policy interest to 1.5 percent by raising the rate by 0.25 of a percentage point at the previous monetary policy meeting held in mid-April. It was the fourth rate hike since August last year.
If the central bank decides to raise it another 0.25 of a percentage point this Thursday, it will be the first time that the central bank has raised the key interest rate for two consecutive months in 15 years since 2007, reflecting the rare and strong inflationary pressure that the country is currently experiencing.
April’s consumer price index rose by 4.8 percent, compared to the same month last year, due mainly to soring global energy prices and supply chain disruptions. The year-on-year increase rate of the consumer price index is at its highest level in 13 years, since October 2008.