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South Korea raises rates on domestic debt, worries about inflation Business and Economics

The Bank of Korea raises borrowing costs by 25 basis points to 1 percent.

The South Korean central bank raised interest rates and revised its inflation forecasts on Thursday, as expected, as concerns about household debt and rising prices indicated further tightening policy next year.

The Bank of Korea’s monetary policy council raised borrowing costs by 25 basis points to 1 percent – 29 out of 30 analysts expected in a Reuters poll. One analyst saw the bank raise interest rates by 50 basis points to 1.25 per cent.

It also raised its inflation forecast for next year to 2 per cent from the previous 1.5 per cent, suggesting further rate hikes are needed amid concerns about faster and longer-term price pressures.

The futures of three-year treasury bonds rose 0.14 points after the bank released a revision of its forecasts, while KOSPI benchmarks and earnings fell.

South Korea has been at the forefront of global stimulus withdrawal as central banks begin to cut stimuli during the pandemic, accelerating inflation and growing financial imbalances.

After rising interest rates for almost three years for the first time in August, consumer inflation in Asia’s fourth-largest economy accelerated to almost a decade high in October.

The economy grew 4 percent in the third quarter, thanks to strong exports of chips and petrochemicals and flattered compared to last year’s pandemic crisis.

The bank still expects the economy to grow by 4% this year and 3% in 2022, as forecast in August.

Increasing price pressures and steady growth have prompted most analysts surveyed by Reuters to push ahead with forecasts. Analysts now see that the interest rate will reach 1.25 per cent in the first quarter and 1.5 per cent by the end of 2022.

‘Financial imbalance’

“The rate had to be raised in November as growth is strong and price pressure is rising. A further rise is expected early in the next year to address financial imbalances, ”said Yoon Yeo-sam, an analyst at Meritz Securities.

A complication of this is the recent rise in daily COVID-19 cases, which first reached more than 4,000 on Wednesday, clouding forecasts for the coming months.

BOK began raising borrowing costs in August as Asia became the first central bank since the COVID-19 pandemic began.

New Zealand raised interest rates for the second time in two months on Wednesday and the U.S. Federal Reserve is expected to step up to hold on to price pressure.

All eyes are now on Governor Lee Ju-yeol’s 02:20 GMT press conference, where investors will seek guidance on when to tighten the next policy.




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