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Bank of Korea Governor Rhee Chang-yong (center) chairs his first rate-setting meeting on May 26, 2022 South Korea’s central bank hiked interest rates for a second straight month on Thursday to tame rampant consumer prices in Asia’s fourth-largest economy while raising further its inflation forecast to the highest since the 2008-09 global financial crisis.The Bank of Korea increased the base interest rate by 25 basis points to 1.75%, the highest since mid-2019, in its first monetary policy meeting chaired by Governor Rhee Chang-yong. The central bank raised the rate last month in an unexpected move.It was the first time for the monetary authority to deliver back-to-back rate hikes since 2007 when it raised borrowing costs in July and August.“The Board sees it as warranted to conduct monetary policy with more emphasis on inflation for some time, as the Korean economy is expected to continue its recovery and inflation to run above the target level for a considerable time, despite underlying uncertainties in domestic and external conditions,” the central bank said in a statement, referring to the Monetary Policy Board.RAISES INFLATION FORECAST, BUT CUTS GROWTH PROJECTIONThe BOK also ramped up its inflation forecast for this year to 4.5%, the largest since 2008, from the previous 3.1%.Consumer inflation is unlikely to cool down in the near term as global commodity prices stayed high on the ongoing war in Ukraine and sustained supply chain disruption. South Korea is also seeking an extra budget.Earlier this month, Rhee said he will consider big-step rate hikes as consumer prices in April soared by 4.8%, the largest growth since October 2008.The BOK has been increasing borrowing costs since August last year to curb inflation that was feared to hurt growth.The central bank lowered its economic growth forecast for this year to 2.7% from the previous 3.0%, amid a trade deficit on surging raw material prices, a slowing China’s economy due to lockdowns against COVID-19 and weakening domestic consumption on soaring inflation.By Mi-Hyun Jomwise@hankyung.comJongwoo Cheon edited this article.
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