South Korea’s central bank raised its policy rate to the highest level since August 2019 on Thursday in an unexpected move, choosing not to wait for the formal appointment of a new governor.
Rhee Chang-yong, South Korea’s nominee to be the Bank of Korea (BOK) chief, is expected to begin his four-year term after parliamentary hearings set for April 19, leaving the bank’s board to review policy rates without a governor for the first time.
Futures on treasury bonds rose after the announcement, aimed at fighting surging inflation, while the won barely moved against the US dollar.
“I don’t think it was BOK’s original plan to hike today,” Shinyoung Securities analyst Cho Yong-gu said.
“But given the March inflation data, that exceeded much above forecast, and 50 basis point hikes by New Zealand and Canada and a soon-to-come 50 basis point hike by the Federal Reserve, it may have brought the decision forward.”
Cho said the Ukraine crisis was also likely to intensify inflationary pressure.
“While there are some signs that financial risks are beginning to recede – credit and house price growth have softened in recent months – inflation remains a big concern for the bank,” Alex Holmes, an economist at Capital Economics, said.
“We think inflation will peak at nearly 5% later this quarter and remain well above target throughout this year. Past comments from the bank suggest that it is not done hiking yet.”
- Reuters, with additional editing by George Russell
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