SEOUL, Oct 12 (Reuters) – South Korea’s central financial institution raised rates of interest by a half proportion level on Wednesday and flagged extra to come back as a surging greenback pushed up import prices however there have been indicators policymakers could also be contemplating slowing the tempo of tightening.
The Financial institution of Korea (BOK) raised its benchmark coverage price (KROCRT=ECI) by 50 foundation factors to three.00%, as anticipated, bringing complete charges hike since August final yr to 250 foundation factors.
Nonetheless, in an indication central bankers had been giving some thought to tempering their aggressive price hikes, two of the BOK’s seven board members voted for a 25 foundation level hike.
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Governor Rhee Chang-yong additionally acknowledged the ache greater borrowing prices inflicted on many households and companies and nodded to a terminal price for coverage at 3.50%.
“It doesn’t suggest we might completely cease there however lots of our board members see the extent at round 3.50%,” Rhee mentioned in response to a query about the opportunity of a terminal price at that degree.
South Korea’s three-year treasury bond futures sharply soared by almost 100 ticks to 102.33 from session lows after Rhee spoke about dissenters Joo Sang-yong and Shin Sung-hwan on the BOK board.
Joo and Shin voted for a smaller hike within the price, Rhee mentioned in information convention, however didn’t elaborate on their views.
Twenty-three of 26 analysts anticipated the financial institution to go for a half-point hike in a Reuters ballot, whereas the remaining three anticipated a quarter-point hike.
Requested whether or not South Korea wants one other massive step hike in November, Rhee mentioned it was too arduous to name because of heightened uncertainty over monetary markets and international financial development.
“Most of the market participant took the dissenter information as an indication that the BOK may cease the present tightening cycle when the speed reaches 3.50%, as some had seen it peaking at 3.75%,” mentioned Yoon Yeo-sam, an analyst at Meritz Securities.
Yoon sees the BOK taking the coverage price to three.75% subsequent yr.
The U.S. Federal Reserve’s three 75-basis-point hikes have propelled a greenback rally in opposition to most different currencies, forcing policymakers world wide to evaluation the danger of contemporary inflation pressures and capital outflows.
The received’s 17% droop this yr may gasoline shopper worth positive factors by making imports dearer.
The BOK mentioned in an announcement following its coverage assembly it sees upside dangers to its August inflation projection for this yr at 5.2%, which warrants continued price hikes.
Governor Rhee has repeatedly mentioned inflation is the No.1 precedence after it surged to close 24-year excessive in July earlier than slowing in August and September.
The BOK’s dovish hints on Wednesday comply with the Reserve Financial institution of Australia shock determination final week to lift charges by a smaller-than-expected 25 foundation level hike because it tried to quell inflation with out crashing the economic system.
The median forecast within the ballot confirmed the BOK’s base price going to three.25% by year-end after which peaking at 3.50% within the first quarter of 2023.
Nearly half of respondents within the Reuters ballot anticipated the bottom price to reaching 3.75% within the first quarter of subsequent yr.
The BOK was one of many world’s first central banks to shift to a tightening cycle from unfastened crisis-mode financial settings final yr and has continued with an aggressive collection of price hikes since.
After Wednesday’s price hike, the Korea Federation of Small- to Medium-sized Enterprises expressed “critical concern” about greater charges.
“We urge the federal government to arrange monetary assist measures similar to increasing coverage funds in order that SMEs who’re quickly in disaster don’t collapse within the present advanced financial disaster,” it mentioned in an announcement.
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Further reporting by Choonsik Yoo, Jihoon Lee; Modifying by Sam Holmes
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