(MENAFN- Trend News Agency)
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, trend reports citing reuters .
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 (KROCRT=ECI) to 3.25%,
the highest since 2012, after delivering a half-percentage point
hike in October.
It forecast the South Korean economy would expand 1.7% in 2023,
down sharply from a previous forecast for 2.1% growth, but stuck to
this year's 2.6% growth projection. It trimmed its 2023 inflation
forecast to 3.6% from 3.7%.
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
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% versus a target of 2% - 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
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.
The slowdown in tightening has also been facilitated by a
rebound in the local currency.
As aggressive U.S. monetary tightening buoyed the dollar this
year, many central banks in Asia have sought to hike rates in step
with the Federal Reserve to keep their currencies from weakening
too much against the greenback, risking capital outflows.
South Korea's won has rebounded more than 7% from a 13-year low
against the dollar touched in late October.
The BOK's 25-basis-point hike is smaller than recent moves by
some regional peers. Central banks in the Philippines and New
Zealand have pressed ahead with outsized rate hikes after the Fed's
four consecutive 75-basis-point rate increases.
Median forecasts of analysts in a Reuters poll point to the BOK
ending its rate hikes at 3.50% by the end of March.