Financial institution of Korea expects financial tightening to weigh extra closely on progress this yr By Reuters

SEOUL (Reuters) – South Korea’s central financial institution stated the lagged results of its aggressive streak of financial tightening would have a much bigger destructive affect on financial progress this yr than in 2022.

The Financial institution of Korea (BOK) estimated that its 300 foundation factors of fee will increase within the present tightening cycle would drag down the nation’s financial progress fee by 1.4 proportion factors in 2023, in contrast with 0.9 proportion factors final yr.

They’re anticipated to decrease shopper inflation by 1.3 proportion factors this yr, versus 0.4 proportion factors a yr earlier than, in response to the central financial institution’s quarterly financial coverage report submitted to parliament on Thursday.

The BOK held rates of interest regular final month and stated it could not resume tightening if inflation adopted its anticipated path, after a yr of uninterrupted hikes and a complete of 10 fee will increase since August 2021.

Governor Rhee Chang-yong stated on Tuesday it was too early to debate fee cuts however that the central financial institution would begin to think about them ought to the inflation fee fall towards 3% close to the tip of this yr.

The BOK cited excessive family debt and restrictive rates of interest as elements intensifying the spill-over results, whereas additionally noting that public price will increase and their affect on inflation expectations could trigger shopper inflation to ease at a slower fee than anticipated.

On international trade, the central financial institution’s financial tightening relieved, by a point, the weakening stress on the Korean received that stemmed from the U.S. Federal Reserve’s rate of interest hikes, the BOK stated.

Nonetheless, exterior elements resembling U.S. financial coverage have had a much bigger affect on international trade than inner elements, it added.

The report stated home costs are more likely to see additional declines this yr, given the same old persistence of destructive sentiment within the property market.