Hike rates

Bank of Korea to hike rates by 25 basis points on November 24 as growth slows

  • BOK Rate Decision Meeting on November 24

BENGALURU, Nov 22 (Reuters) – South Korea’s central bank will reduce its pace of tightening on Thursday and raise rates by a modest 25 basis points amid slowing domestic growth, despite high inflation and a reserve aggressive US federal government, according to a Reuters poll.

South Korea’s economic growth was rapidly losing momentum, according to the latest measures, as the rising cost of living eroded household incomes and tightened demand, prompting the Bank of Korea (BoK) to find a balance between the inflation and growth.

Still, with inflation well above the central bank’s 2% target of 5.7% in October, as well as aggressive Fed tightening, the Bank of Korea still has a bit more to do before to take a break.

All but one of the 30 economists in the November 15-21 poll predicted the BoK would raise its key rate (KROCRT=ECI) 25 basis points to 3.25% on Thursday. We expected an increase of 50 basis points.

If the majority opinion prevails, the BoK will raise rates to the highest level since 2012.

“The combination of still high inflation and a hawkish US Federal Reserve means the central bank’s rate hike cycle still has room to maneuver,” noted Krystal Tan, an economist at ANZ.

“Amid growing concerns about growth and the credit market, the case for a rise at a more gradual pace has grown even stronger.”

Nearly 60% of respondents, 17 out of 30, forecast a further hike of 25 basis points by the end of March, bringing rates to 3.50%. Eleven forecast rates would climb to 3.75% by then. The other two expected no change from 3.25%.

Median forecasts indicated that the base rate would remain at 3.50% until the end of 2023. If this materializes, the BoK would be one of the first Asian central banks to end its cycle of policy tightening.

“We believe the BoK will note slowing growth and inflation and growing financial stability concerns and BoK rhetoric is likely to take on a more nuanced tone,” noted Derrick Kam, an economist for the Asia at Morgan Stanley.

“The risk on our call is biased towards a longer upside cycle. This would be the case if global commodity prices rise due to geopolitical and/or supply issues, or if market expectations for tight the Fed take another hawkish tilt and lead to another bout of KRW weakness.”

Reporting by Devayani Sathyan and Anant Chandak; poll by Maneesh Kumar; Editing by Jonathan Cable and Chizu Nomiyama

Our standards: The Thomson Reuters Trust Principles.