Despite the rising inflation situation in every corner of the world, the Bank of Korea (BOK) is seen to be unfazed in implementing its monetary tightening by saying aggressive rate hikes are not necessary.
The matter can be concluded through the actions of BOK Governor Rhee Chang-Yong who increased the 7-day repurchase rate by 25 basis points to 2.5%.
The increase is also seen to be in line with the expectations of all economists in a Bloomberg survey.
Through Rhee's official statement, BOK will continue to increase rates in that range in the future while trying to restrain prices and support the currency to ensure the economy continues to 'tick'.
Previously, Rhee had signaled a gradual tightening of rates as the impact of higher borrowing costs on household debt led to a bleak economic outlook.
However, it should be noted that South Korean inflation has now risen to the highest level in more than 2 decades as average price growth rose 5.2% from the forecast of 4.5%.
As a context, BOK was one of the first in the Asia Pacific to increase 50 basis points since the pandemic recovery before retreating more dovish when the Federal Reserve (Fed) of the United States (US) became aggressive.
As a result of these actions, the BOK has reached the middle line of its neutral rate range which indicates that the economy is neither too bad nor too good.
