BOK chief sees inflation peaking out Q4, reiterates gradual rate increases

[Photo by MK DB]

Bank of Korea Governor Rhee Chang-yong reiterated that the Korean central bank would keep to incremental raises in 25 basis points as he sees the inflation running at 6 percent would peak out in the fourth quarter.

“Korea’s inflation rate could ease after rising more than 6 percent for two to three months from now. (If the inflation trend continues within expectations) It would be desirable to gradually increase the base rate by 0.25 percentage point to contain inflation,” Rhee told a hearing by the National Assembly strategy & finance committee meeting on Monday.

“If inflation moves beyond expectations, the bank can moderate the hike scope and pace upon studying data,” he added.

The BOK delivered its first-ever hike in 50 basis points in July to place the base rate at 2.25 percent.

“From a macro perspective, the bank has no choice but to stick to the current monetary tightening mode to prevent more damaging impact on the economy from strong prices,” he said.

According to BOK’s guidance on the second-quarter GDP last week, the Korean economy is projected to have added 0.7 percent from the previous quarter.

U.S. Federal Reserve on July 27 delivered the second 75-basis point hike in its base rate and placed median U.S. rates above Korea’s. BOK still denied the risk of outflow of foreign capital from Korean securities market. BOK has three rate-setting meetings left in the year, including this month’s meeting on Aug. 25.

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