Bank of Korea Raises Rates To Battle Inflation

The Bank of Korea raised interest rates by 25 basis points to 3.5 percent on Friday morning, Jan. 13, 2023, as the South Korean economy continues to wrestle with above-target inflation, weakening exports and falling house prices, Christina Davies reported for Financial Times.

Photo Insert: South Korea recorded overall inflation for 2022 of 5.1%, its highest level since 1998 and up from 2.5% in 2021.

Today’s rise was the 10th in the present tightening cycle. South Korea’s central bank executed two 50-basis points rate rises last year, as the Korean won weakened precipitously in response to tightening from the US Federal Reserve.

South Korea recorded overall inflation for 2022 of 5.1%, its highest level since 1998 and up from 2.5% in 2021. South Korea relies heavily on imported fossil fuels to power its export-oriented economy.

The Korean won has since strengthened against the dollar, rising sharply in November and December last year, which analysts warn will have a “mixed effect” for the South Korean economy.

“On one hand, it will help to anchor inflation and mitigate the impact of high price for imported goods,” Eric Chiang, associate economist at Moody’s Analytics, wrote. “On the other hand, [it] will make exports relatively more expensive for foreign buyers, weighing on export growth.”

Analysts at ANZ Research predict that Friday’s rate rise is likely to be the last of the present cycle, citing “weakening external demand and a faltering property market.”

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