SEOUL: The Bank of Korea (BoK) has warned that inflation will stay well above 3% for a considerable time to come, after keeping its policy normalisation on hold until a new leader takes the helm of the central bank.
The South Korean central bank yesterday left its seven-day repurchase rate at 1.25% in the last decision overseen by governor Lee Ju-yeol.
All 17 economists surveyed by Bloomberg had expected the bank to stand pat.
The BoK sharply raised its inflation view to 3.1% for this year from its earlier 2% view, a move that is likely to cement expectations for another rate hike in the second quarter.
The bank also stuck to its view that the economy would continue sound growth helped by a recovery in private consumption and solid exports, despite the tightening of Covid-19 restrictions.
Again, the comment suggests that a near-term rate hike, as early as April, is on the cards.
The decision to hold rates seems to conflict with such a hawkish forecast for inflation and adds to pressure on the BoK to hike at the next board meeting, said Jeong Won-il, an economist at Yuanta Securities. “I don’t know what’s keeping them.”
South Korea’s three-year bond yield jumped five basis points to 2.37% as of 10:55am yesterday after the central bank raised its inflation forecast.
The won was little changed following the announcement, down 0.2% at 1,196.35 per dollar.
The central bank has raised borrowing costs three times since August to contain stronger-than-expected inflation and financial imbalances in the economy.
By April the country will have elected a new president and governor Lee’s replacement will likely have emerged.
President Moon Jae-in has the right to select the next governor but may wait until his own successor is chosen so the two can discuss the appointment.
Uncertainty over who will be leading the country and the central bank likely contributed to the hold decision along with concern over how the crisis in Ukraine will play out.
The bank didn’t mention these factors in its statement. — Bloomberg