BOK Raises Key Rate from 1.5% to 1.75%
The Bank of Korea raised the key rate from 1.5 percent to 1.75 percent on May 26. The central bank raised the rate for two months in a row for the first time since July and August 2007. The rate of 1.75 percent is for the first time in 35 months and the bank signaled that the rate at the end of this year might be 2.5 percent or less.
The bank’s move is because consumer prices are rising fast. South Korea’s inflation rate was 4.8 percent last month, the highest since October 2008. The central bank said that its top priority would be inflation control for months to come.
That day, the bank adjusted its consumer inflation forecast for this year from 3.1 percent to 4.5 percent, reaching over 4 percent for the first time in 11 years. At the same time, it lowered its domestic economic growth forecast from 3 percent to 2.7 percent.
According to economists, the ongoing inflation is likely to continue for a while as global inflation is showing no signs of letting up. Raw material and food ingredient prices, which have surged since the Russian invasion of Ukraine, are unlikely to fall in the near future and this is seriously affecting the South Korean economy, which is highly dependent on imported food and energy. Besides, shutdowns in major Chinese cities are leading to fast-rising freight shipping costs.