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BOK raises interest rates to curb inflation

People walk past the Bank of Korea (BOK) headquarters in Seoul. (Photo: Bloomberg)

In the latest announcement, BOK said it raised the policy rate by 0.25 percentage points to 1.5%. Previously, BOK was expected to keep interest rates unchanged in April to wait for the official appointment of a new governor.

However, according to experts, the ratio inflationary in Korea in March increased to 4.1% compared to the same period in 2021 – the fastest increase in more than 10 years, forcing the BOK to act sooner.

Besides, the moves to raise interest rates by the central banks of Canada, New Zealand and possibly the US in the near future, also contributed to prompting BOK officials to change their views.

Since August 2021, the BOK has carried out three basic interest rate hikes, of which the most recent rate hike is in January 2022 after maintaining borrowing costs at a record low level for about two years. pandemic response.

The BOK’s decision to raise interest rates this month comes amid persistent concerns about rising inflationary pressures due to prolonged supply chain disruptions, demand recovery from the pandemic, and oil prices. and goods increased higher due to the impact of the conflict between Russia – Ukraine.

Korea’s consumer price index (CPI) stood at 106.06 in March 2022, up 4.1% from the same period in 2021 and the fastest increase in more than 10 years. This is higher than February’s 3.7% increase and the highest since December 2011 when consumer prices were recorded at 4.2%.

The growing inflationary pressures in South Korea is not surprising. Many economists have sounded the alarm, raising concerns about the risk of a recession in the South Korean economy with a combination of economic stagnation and lingering inflation.

In 2022, consumer prices will gradually increase amid growing geopolitical uncertainty in Eastern Europe. This raises the possibility that Korea’s annual consumer prices will be higher than the 3.1% previously forecast by the BOK.

Although Asia’s fourth-largest economy is on track to recover strongly (from the COVID-19 pandemic-induced downturn) on the back of strong exports, it still faces growing economic uncertainties in both countries. at home and abroad: the COVID-19 pandemic is not over, the Russia-Ukraine conflict and strict social distancing enforcement due to COVID-19.

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