(Bloomberg) -- The Bank of Korea raised its key interest rate on Thursday, brushing aside concerns about a leadership vacuum and global risks to the economy as the board focused instead on resuming its struggle against escalating inflation.
The central bank increased its seven-day repurchase rate by 25 basis points to 1.5% in the board’s first-ever decision without a governor in place. Some 11 economists surveyed by Bloomberg had expected the hike, while 10 forecast policy would remain unchanged.
The rate rise highlights a sense of urgency among policy makers to tackle inflation after the bank last week warned it’s likely to remain in a 4% range for the foreseeable future. The nominated new Governor Rhee Chang-yong has made clear he sees inflation as a pressing concern ahead of a parliamentary confirmation hearing on April 19.
Central banks worldwide are struggling to cool consumer prices fueled by pandemic-era stimulus and exacerbated by Russia’s invasion of Ukraine. The BOK raised rates three times between August and January to tackle soaring asset prices and inflation, before standing pat in former Governor Lee Ju-yeol’s final meeting in February.
“Inflation is clearly the key concern that monetary policy will need to address and I think they will continue to tighten monetary policy in the next two to three quarters,” Ho Woei Chen, an economist at United Overseas Bank (OTC:UOVEY) Ltd. in Singapore, said before the decision.
“I think Rhee may not differ too much from Lee in the monetary policy handling at this point though he may be perceived to be less hawkish,” Ho added.
Rhee is set to undergo a parliamentary hearing on April 19 and once confirmed is likely to continue with the push toward normalization as he has made clear he sees inflation as a pressing concern. The next policy meeting is May 26.
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