BOK forecast to hike key rate to 2% by yearend

South Korea's central bank is expected to raise its benchmark interest to 2 percent by the end of this year to tackle rising inflation and a brisk economic recovery, a local brokerage house said Thursday.

Hana Financial Investment Co. said its latest forecast is 0.25 percentage point higher than its earlier projection of 1.75 percent for the end of this year.

"The key rate outlook has been raised in light of high inflation at home and abroad, and South Korea's economic growth outpacing its potential," said Lee Mi-sun, an analyst at Hana Financial Investment.

In mid-January, the central Bank of Korea (BOK) raised the country's policy rate by a quarter percentage point to 1.25 percent, the third rate increase since August.The rate increase represented a shift in BOK's policy from its earlier position that the country's interest rates should be kept low to help bolster the pandemic-hit economy.

Lee said the BOK is widely expected to freeze its key rate at its February rate-setting meeting a week later but said the central bank could jack up the rate by a quarter percentage point due to those negative factors at home and abroad.

In its latest outlook on the economy to be unveiled next Thursday, the BOK is projected to revise upward its inflation target to 2.8 percent for 2022 from an earlier 2 percent, Lee added.

South Korea is faced with growing inflationary pressure amid soaring oil prices and a weak local currency.

In January, consumer prices rose 3.6 percent from a year ago, expanding more than 3 percent for the fourth straight month. The BOK aims to keep annual inflation at 2 percent over the medium term.

South Korea's economy has been recovering solidly from the fallout of the coronavirus pandemic. In the July-September period of 2021, it grew 0.3 percent from three months earlier. The BOK has forecast the local economy to expand 3 percent this year, well above its growth potential of around 2 percent. (Yonhap)