by Ambar Warrick
Investing.com– On Thursday, South Korea’s central bank raised its benchmark interest rate to its highest level in eight years to combat blistering inflation amid rising commodity prices and economic growth. case of slowing down.
Bank of Korea (BoK) raised its base rate by
basis points (bps) 2.50% – double the pre-pandemic level. The move is in response to inflation hitting in July 25 year high.
In July, the Bank of Korea raised interest rates by a larger-than-expected 50 basis point due to rising inflation. Thursday’s decision was in line with expectations.
South Korea’s economy is facing greater headwinds from rising commodity prices, which have severely increased its trade deficit and weakened the won.
won rose 0.3% after the decision, 25.25 Converted to US dollars. But the currency is trading near the last low of 2009.
The economic slowdown in China, the country’s main trading partner, has put a lot of pressure on South Korea’s economy.
The Bank of Korea lowered its 2022 economic growth forecast to 2.6% from 2.7%. It also expects 2023 growth to slow to 2.1%.
The bank raised its inflation forecast for this year to 5.2 percent from 4.5 percent. CPI inflation rose at a 6.3% pace in July.
The Bank of Korea, one of the first in the world to begin tapering its COVID-era monetary stimulus, began its rate hike cycle in August 2021.
This could also lead the bank to end its tightening cycle early – as early as November.
High inflation and rising interest rates have begun to weigh on the Korean economy. The economy grew 2.9% in the second quarter, down from 3% in the first quarter.