Bank of Korea to raise rates again on May 26, to hit 2.25% by year end – Reuters poll

BENGALURU Reuters – South Koreas central bank is likely to hike its benchmark rate at a second consecutive meeting on Thursday to combat inflation running at more than double its target, taking rates higher by year end than previously thought, a Reuters poll showed.pdivdivdiv classBodysc17zpet90 cdBBJodiv

pInflation in Asia‘s fourthlargest economy rose to more than a 13year high of 4.8 in April, as repercussions from the RussiaUkraine war and a weakening won, down 7 this year, ramped up prices. Inflation has stayed above the central bank’s target of 2.0 for more than a year.p

pAll but one of the 28 economists polled May 1723 forecast the Bank of Korea BoK will raise its policy rate by 25 basis points to 1.75 at its May 26 meeting. p

pAmong the first central banks to start raising rates since the pandemic, it has already hiked the base rate by a cumulative 100 basis points since August 2021.p

pThe BoK is expected to follow up on a May move with two more hikes, one per quarter, taking rates up to 2.25 by year end, based on a majority view of 17 of 28 economists. p

pThree expected rates to end the year at 2.50, seven said 2 and one said 1.75. p

pThe majority view is up 25 basis points compared to the April poll, taking rates to a level last seen in the second half of 2014.p

pBut there is no consensus that rates will climb above that beyond the end of this year. p

p“It would be difficult for policymakers to extend the ratehike cycle into 2023, as we expect the peakout of inflation in 2H22,” said Oh Suktae, an economist at Societe Generale.p

pA separate poll taken last month predicted South Korean inflation to average 3.3 this year, but fall to 2.0 in 2023.p

pOf 20 economists who provided an end2023 rate view in the latest survey, nine said 2.50, four said 2.25, while the rest said 2.0 or lower. p

pWith the won down this year, the BoK is under some pressure to keep hiking while the worlds biggest central bank is also raising rates, and at the moment, aggressively. p

pA separate Reuters survey showed the U.S. Federal Reserve will take the key interest rate to 2.502.75 by year end compared to 2.002.25 predicted just a month ago. [ECILTUS]p

p“A deteriorating balance of payments position at a time when the U.S. Fed is normalising monetary policy will also add impetus for the BoK to act sooner rather than later,” said Krystal Tan, economist at ANZ.p

pEarlier this month, the BoKs newlyappointed Governor Rhee Changyong, due to chair his first policy meeting on Thursday, said he could consider bigger interest rate increases in coming months.p