Another bank hikes rates despite lower inflation forecast -

Another bank hikes rates despite lower inflation forecast

Central banks worldwide have been hiking interest rates over recent months due to soaring inflation. While inflation continues to skyrocket globally, there are lower forecasts for next year, with expectations it could be under control and within some countries’ targets by the latter part of 2023.

Despite this, the Central Bank of Korea has once again hiked its base interest rate by 0.25% amid concerns that inflation will remain at high levels for some time. The base interest rate in South Korea now stands at 2.5%. The country has a higher interest rate than many other countries despite having much lower inflation forecasts. In July, the central bank increased the base rate by 0.5% to 2.25%.

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Figures show that CPI in South Korea increased by 6.3% in July compared to 6% in June. This was the fastest rate increase in nearly a quarter of a century. In addition, the Bank of Korea has increased its inflation forecast for this year, taking it from an estimate of 4.5% in May to 5.2%. This would equate to the fastest pace seen since 1998.


In a statement, the central bank said: “Consumer price inflation rate may be lowered due to the fall in international oil prices, but as the core price rises continue, it is expected to remain at a high level of 5-6% for a considerable period of time.”

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Forecasts for economic growth cut

The bank has also cut its forecast for economic growth, downgrading it from 2.7% to 2.6% for this year.

Officials said that the downward forecast stems from weaker exports. The bank stated: “The global economy and international financial markets are expected to be affected by international raw material prices and global inflation, changes in economic indicators and monetary policies of major countries, and geopolitical risks.”

economic growth

However, the economy in South Korea continues to grow and is expected to do so by 2.1% next year. A surge in private consumption and exports saw the South Korean economy experience year-on-year growth of 2.9% in the second quarter of 2022.

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In a recent statement, the Ministry of Economy and Finance said: “While the economy has continued to improve gradually due to recovery in employment and in-person service industries, amid continued high inflation and declines in some indicators of economic sentiment caused by external factors, there are concerns of economic slowdown such as a drag on export recovery in the future.”

It added: “Internationally, although volatility in the global financial market is somewhat reduced, with global inflationary pressure continuously rising, global economic downside risks are higher due to major economies’ interest rate increases, the US and China’s economic slowdowns, and the prolonged Russia-Ukraine war.”