Bank of Korea hikes rates as markets see end of tightening By Reuters

©Reuters. FILE PHOTO: A note won by South Korea is seen in this May 31, 2017 illustration photo. REUTERS/Thomas White/Illustration

By Choonsik Yoo and Jihoon Lee

SEOUL (Reuters) – South Korea’s central bank raised interest rates by 25 basis points on Friday, as expected, but suggested a possible downgrade of this year’s economic growth forecast and dropped an indication of the need for further rate hikes.

Those dovish comments came in a policy statement ahead of the governor’s press briefing. Economists had predicted in a Reuters poll that Friday’s rate hike would mark the end of a rate-hiking cycle that the Bank of Korea began in late 2021.

The Bank of Korea said its seven-member monetary policy board decided to raise interest rates to 3.50%, the highest since late 2008.

“Looking forward, domestic economic growth is expected to moderate, impacted by the global economic slowdown and rising interest rates, and GDP (gross domestic product) growth for this year will come in below the November forecast of 1.7%,” it said in the statement.

The three-year Treasury bond futures had extended gains from roughly flat levels to 19 ticks by 0137 GMT. The won was 0.5% stronger against the dollar, slightly paring gains from previous levels.

The rate hike was in line with a prediction by 36 out of 40 economists in a Reuters poll, in which the remaining four had expected the central bank to hold interest rates steady at 3.25%.

Friday’s decision marked the 10th rise since the current tightening cycle began in August 2021, bringing the total amount of the hike to 300 basis points.

The decision follows Governor Rhee Chang-yong’s comments this month that the central bank’s policy stance would remain focused on stabilizing prices. It would also look to achieve a soft landing for the economy, he said.

Like its global peers, the Bank of Korea is facing growing pressure to adjust its monetary policy stance as domestic consumer and corporate spending slows and global trade slows.

Rhee will hold a press conference at 0210 GMT to explain the policy decision.