South Korea’s central bank has raised its benchmark rate to the highest level since August 2019 in an unexpected move, with many expecting the decision to wait until the formal appointment of a new governor.
In its rate review, the first ever held by the bank without a governor, the monetary policy board voted to raise the benchmark interest rate by a quarter of a percentage point to 1.50%, surprising many analysts.
In a Reuters poll only 11 out of 29 economists predicted the outcome correctly, with the majority expecting the bank to keep the base rate unchanged.
The decision to push ahead with the review in the absence of a governor highlights the precarious situation the Korean economy finds itself in. Joo Sang-yong, acting chairman of the monetary policy board, said the bank could not afford to wait for the appointment to be made to push forward with its efforts to slow inflation.
Inflation in South Korea is expected to continue at record-high levels for the decade, with still-rising commodity prices due to the Russian military incursion in Ukraine threatening the post-Covid recovery previously taking place.
Further rate hikes will most likely be needed to tackle rising prices, with analysts predicting the rate will reach 2.0% by the end of this year.
Subsequent decisions will be made with a new governor in place, with nominee Rhee Chang-yong expected to be in place as the central bank’s chief in time for its next rate review.