South Korea’s central bank held its base rate steady on Thursday after making three increases in the past six months as it signaled tighter policy and forecast stronger inflation.
The Bank of Korea kept its benchmark seven-day repurchase rate unchanged at 1.25%, a pre-pandemic level set in January after back-to-back rate rises.
All but one of the 21 analysts polled by The Wall Street Journal ahead of Thursday’s decision had expected the bank to pause its tightening cycle and assess the impact on the economy. They all penciled in more rate increases for this year.
The bank raised its inflation forecast sharply for this year, showing it remains under pressure to raise rates further and curb price growth.
The bank now expects consumer prices will rise 3.1% for 2022, much stronger than its November projection of 2.0% growth. It expects the gross domestic product to expand 3.0% this year, unchanged from its earlier forecast.
As the economic recovery stays on track, stronger-than-expected inflation warrants more tightening.
Pandemic-era stimulus as well as surging oil prices fueled by Russia-Ukraine tensions and global supply constraints have also added to inflationary pressure recently.
Inflation in South Korea remained above the central bank’s 2% target for 10th straight month in January.