Following the results of its May meeting, the Bank of Korea decided to raise the interest rate to 1.75% from 1.5%, explaining such a step by the desire to curb high inflation. This was the second rate increase in a row.
"The Bank of Korea will continue to adjust its monetary policy, focusing on the growth rate of inflation, which is expected to be above the target level for a considerable time," the Central Bank said.
Consumer prices in Korea are already rising at the fastest pace since 2008, fueling the governor’s view that inflation has become a bigger concern for the bank than other headwinds to economic growth. Inflation expectations this month climbed to the highest level in almost a decade, an indication that consumers are increasingly conscious of the upward trajectory of prices. If inflation accelerates too quickly, consumption is at risk of weakening in a setback for the recovery.
According to the forecasts of the Bank of Korea, the country's GDP will grow by 2.7% in 2022. The previous forecast assumed economic growth of 3%. The bank said that the deterioration of external conditions, namely coronavirus blockages in China and the Russian-Ukrainian conflict, will negatively impact economic growth prospects.
The Bank of Japan also revised its inflation forecast for the current year (to 4.5% from 3.1%) and next year (to 2.9% from 2%).