Bank of Korea may be pushed into another rate hike — Korea Herald
In South Korea, the Bank of Korea may face increased pressure to further raise its benchmark interest rate after the US Federal Reserve raised its rate for the first time in more than three years. This was reported by Korea Herald, citing analysts.
US Federal Reserve decision
The Fed raised its benchmark rate by 0.25 percentage points, to a range of 3.75–4.00%. The US regulator also signaled the possibility of another increase by the end of the year amid persistent inflation and high oil prices.
After the Fed's decision, the gap between the key rates of South Korea and the United States reached 1 percentage point. Before that, the Bank of Korea raised its rate twice in a row — in July and August — bringing it to 3%.
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Factors for the Bank of Korea
According to analysts, accelerating inflation, exchange-rate changes, and high household debt may push the Bank of Korea toward further monetary tightening. They also suggest that the regulator may raise the rate in November rather than next month in order to assess the effects of the two previous decisions.
Kwon Min-soo, senior deputy governor of the Bank of Korea, held a meeting on the potential impact of the Fed's policy on the domestic financial and foreign exchange markets. According to him, the Fed is likely to maintain tight monetary policy. Among the risks, he cited the situation in the Middle East, the state of public finances in leading economies, and uncertainty surrounding the artificial intelligence industry.
The Bank of Korea said it would determine the timing and pace of further rate hikes by assessing domestic and external conditions. Economic growth may be an additional argument for tighter policy: the country's nominal GDP grew at the fastest pace in 47 years in the second quarter thanks to exports and artificial intelligence-related investment.
