The second increase in interest rates by South Korea’s central banks this year was due to rising prices and increasing household debt.
Analysts were widely anticipating the Bank of Korea’s quarter-point increase in percentage to 1%.
As policymakers try to manage rising inflation after the pandemic, this is the latest move of a central bank.
On Wednesday, New Zealand increased rates by 2% for the second consecutive month.
The Bank of Korea released a statement saying that the Korean economy had continued to recover.
The Board stated that it would continue to implement monetary policies in an effort to support economic growth, stabilize inflation at the targeted level for a medium-term period and pay attention to financial stability.
More hikes in the future
Inflation outlook was also increased to 2.3% this year, and to 2% in 2022 by the bank. This suggests that there will be more rate increases.
“The Bank of Korea made it clear that controlling financial risk amid rising house prices and increasing household debt is its top priority. “Both are still growing strongly,” Alex Holmes, Asia Economist at Capitol Economics said.
South Korea was the first Asian country to increase interest rates after the outbreak of the coronavirus pandemic in August.
It marked the nation’s first rate rise in three years. This move placed the country at the forefront of an international effort to pull the massive amounts of stimulus created to mitigate the effects of Covid-19.
Policy makers do this to limit rising prices as well as contain financial imbalances.
The US Federal Reserve and Bank of England are two of the major central banks in the world that will likely tighten their monetary policies over the next few months.
Wednesday saw the Reserve Bank of New Zealand raise its cash rate to 0.755%.
RBNZ has raised the rate for the second time in just two months as unemployment falls and property prices rise.
This was just as New Zealand’s government announced its plans to open borders again and allow foreigners into the country next year.
Since the beginning of the Covid pandemic, many people and tourists have been unable to leave the country due to the strict restrictions.
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