BOK hints at further rate hikes in 2023 on high inflation concern

[Source : BOK]

South Korea’s central bank is expected to continue to raise the country’s policy rate next year as inflation is expected to remain high, it hinted on Friday.

“The Bank of Korea’s (BOK) monetary policy for next year will focus on price stability to help the country’s inflation return to the target level of 2 percent,” it said Friday in a report titled “Monetary Policy for 2023.”

The BOK forecast Korea’s headline inflation in the mid-3 percent level and core inflation that excludes volatile food and energy factors in the upper-2 percent level in 2023. Inflation growth would slow next year from this year on the economic slump but anticipated hikes in utility bills will likely keep inflation stay above the target range of 2 percent next year.

The BOK is expected to raise the policy rate although this could sacrifice the country’s economy. The BOK forecast that the Korean economy will fall short of the country’s potential growth rate target mainly due to the global economic slowdown until the first half of next year.

Recovery in consumer spending next year is also expected to lose steam gradually due to high interest rates while Korea’s exports and investments are projected to remain lackluster due to the downturn in major economies.

Financial and foreign exchange markets are expected to remain choppy next year as well, given the outlook of continued monetary tightening in major countries and credit-risk aversion in the real estate-related financial markets, it said.

External uncertainties, however, are forecast to ease in the second half of next year, which could snap the economy’s losing streak, according to the BOK.