[Weekly Review] Bank of Korea Takes on 'Inflation Fighter' Role... Inflation Forecast Hits Highest in 14 Years

Bank of Korea Raises Benchmark Interest Rate for Two Consecutive Months... First Time in 14 Years and 9 Months
Signals Possible Further Increase... "Inflation Expectations Rise"
Inflation Forecast Revised Upward... Economic Growth Outlook Downgraded
Choo Kyung-ho: "Inflation Not Easy... We Will See Figures in the 5% Range"

Lee Chang-yong, Governor of the Bank of Korea, answering questions
(Seoul=Yonhap News) Reporter Hong Hae-in = Lee Chang-yong, Governor of the Bank of Korea, is answering questions from the press after explaining the results of the Monetary Policy Committee meeting held on the 26th at the Bank of Korea briefing room in Jung-gu, Seoul.
At the meeting, the Monetary Policy Committee raised the base interest rate by 0.25 percentage points from the previous 1.50% to 1.75% per annum. This marks the first time in about 15 years that the Bank of Korea’s base rate has been raised for two consecutive months. 2022.5.26
hihong@yna.co.kr
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[Asia Economy Sejong=Reporter Lee Junhyung] The Bank of Korea raised the base interest rate for the second consecutive month last month to curb soaring inflation. Lee Chang-yong, Governor of the Bank of Korea, also hinted at the possibility of further rate hikes. The consumer price inflation forecast reached its highest level in about 14 years.

The Monetary Policy Board of the Bank of Korea held a monetary policy meeting on the 26th and raised the base interest rate by 0.25 percentage points from 1.50% to 1.75% per annum. Previously, the Bank of Korea initiated monetary policy normalization by raising the base rate by 0.25 percentage points in August last year. The Bank of Korea raised the base rate last November, January this year, and again last month. This is the first time in 14 years and 9 months since July and August 2007 that the base rate has been raised for two consecutive months.

The reason behind the Bank of Korea's consecutive rate hikes lies in the unusual inflationary trend. Last month, the consumer price inflation rate rose to 4.8%, the highest level in 13 years and 6 months. The expected inflation rate, which reflects consumers' outlook on prices for the next year, stood at 3.3% as of this month, marking the highest level in 9 years and 7 months since October 2012 (3.3%).

Upward Revision of Inflation Forecast

The Bank of Korea also revised its consumer price inflation forecast upward to 4.5%. This is 1.4 percentage points higher than the February forecast (3.1%). It is the first time since 2011 that the Bank of Korea has expected the consumer price inflation rate to reach the 4% range. If the annual forecast of 4.5% is realized, it will be the highest inflation rate since 2008 (4.7%).

This is why the Bank of Korea hinted at the possibility of further base rate hikes. Governor Lee said, "The Statistics Korea will announce the May inflation rate early next month, and according to the Bank of Korea's forecast, it seems likely to exceed 5%," adding, "We will focus on inflation in conducting monetary policy over the coming months." He continued, "The inflation forecast has risen significantly," and said, "It is a reasonable expectation that the market is anticipating the base rate to be between 2.25% and 2.5% per annum by the end of this year."

Deputy Prime Minister Choo Kyung-ho speaking at the financial institutions meeting
(Seoul=Yonhap News) Photo by Park Dong-joo = Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho is speaking at the financial institutions meeting held at the Bankers' Hall in Jung-gu, Seoul on the 27th. 2022.5.27 [Joint Coverage]
pdj6635@yna.co.kr
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Choo Kyung-ho: "Inflation is Not Easy to Tame"

The Bank of Korea is not the only institution forecasting inflation in the 5% range. On the 27th, Choo Kyung-ho, Deputy Prime Minister and Minister of Economy and Finance, after a meeting with the heads of the five major financial holding companies at the Seoul Banking Hall, said, "As the Bank of Korea Governor mentioned, we will see numbers exceeding 5% in various forms for a certain period." Deputy Prime Minister Choo added, "It's hard to say precisely, but I think we will see numbers in the 5% range," and stated, "The current inflation situation is not easy."

The economic growth forecast was also eventually revised downward. The Bank of Korea lowered this year's real Gross Domestic Product (GDP) growth rate from 3.0% to 2.7%, a 0.3 percentage point decrease. The growth forecast for next year was also lowered from 2.5% to 2.4%, a 0.1 percentage point decrease. This is due to the ongoing effects of rising raw material prices caused by supply chain disruptions and economic slowdown from China's lockdown measures, which are expected to continue into next year.

[Image source=Yonhap News]

World Gas Congress Held in Daegu Concludes

Meanwhile, the World Gas Congress held in Daegu on the 23rd concluded the day before. The Gas Congress, hosted by the International Gas Union (IGU), is the world's largest gas event and is also called the "Gas Olympics." This is the third time the Gas Congress, which has a history of about 90 years, has been held in Asia, following Tokyo, Japan (2003), and Kuala Lumpur, Malaysia (2012). Accordingly, President Yoon Suk-yeol attended the opening ceremony of the Gas Congress on the 24th and delivered a congratulatory speech.

About 8,800 people from 80 countries attended this Gas Congress. Additionally, 460 global energy companies, including ExxonMobil, Shell, and British Petroleum (BP), gathered. Korea Gas Corporation expects the congress to generate economic effects such as 1,200 jobs created and 100 billion KRW in production inducement.