South Korea’s central bank returned to its usual quarter-percentage-point rate increase in August after an outsized increase in the prior month, seeking to curb inflation but avoid hurting the economy.
The Bank of Korea raised the benchmark seven-day repurchase rate by 25 basis points to 2.50% on Thursday, as expected. That marked its fourth consecutive rate increase and the bank is projected to tighten policy further.
All but one of 27 analysts polled by The Wall Street Journal ahead of the rate decision forecast a normal-sized rate increase following the rare 50 basis-point hike in July.
The bank on Thursday lowered its gross domestic product growth forecast for South Korea while raising its inflation estimate for the year.
It now expects GDP to expand 2.6% in 2022, slower than its May projection of 2.7%. Growth in exports–a main growth engine for the country–is losing steam amid the slowdown in the global economy.
The bank, however, expects inflation to average 5.2%, higher than its earlier forecast of 4.5%, though there are some signs that price growth is peaking.
The BOK is also under pressure to raise borrowing costs at home in response to the U.S. Federal Reserve’s aggressive policy tightening and the won’s weakness against the greenback.
Most analysts expect the bank to continue to raise rates through 2022 but remain divided on whether the policy tightening will continue next year and for how long.
Corrections & Amplifications
This item was corrected at 0124 GMT to reflect the Bank of Korea raised the benchmark seven-day repurchase rate to 2.50% in the second paragraph.