By Tushar Goenka

BENGALURU (Reuters), – In an effort to control rising inflation and reduce household debt, the Bank of Korea may raise its policy interest rate.

According to a Jan. 5–11 Reuters poll, 25 of 35 economists responded that the BOK would raise their base rate by 25 basis point to 1.25% during its Jan. 14 policy meeting. It was the same level as it was in February 2020 just before the outbreak of coronavirus.

The South Korean central bank raised interest rates by 25 basis points in the last meeting of November, making it the only Asian counterpart to do so.

Since over 20 years, the BOK hasn’t raised rates at back to back meetings.

Paik Yoonmin (fixed-income analyst, Kyobo Securities) stated, “Economic uncertainty at home is increasing. Governor Lee Juyeol reaffirmed that he will normalise monetary to address financial imbalances through remarks regarding rising housing prices or increasing household debt.”

The fact that inflationary pressure could continue for considerable periods of time can also be considered as a reason for an interest rate increase.”

Asia’s fourth largest economy saw inflation accelerate last year, reaching its highest point since 2011. It was far higher than the central banks’ forecasts. This suggests to policymakers that an extended period of rising prices will be longer-lasting than expected.

This supports the BOK’s case to stop inflation from accelerating at a moment when home prices are on the rise.

The BOK forecast that the rate would rise to 1.5% in the third quarter, after a Friday rise. The BOK was expected to remain there until at least 2023.

However, more than one quarter of the respondents didn’t plan on a rate increase at Jan. 14, though

“The Bank of Korea does not usually raise interest rates consecutively.” Capital Economics’ Alex Holmes stated that after November’s rate increase, the bank expects to keep it unchanged Friday.” He also said that he sees three more rate hikes later in the year.

GRAPHIC – Reuters Survey: Bank of Korea policy, South Korea’s economic outlook

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South Korea has also begun preparations for the March presidential election. Analysts believe that the BOK will be more cautious about its monetary policies due to the Omicron coronavirus variant’s recent spike in incidences.

Respondents to an additional question indicated that six out of seven said their inflation forecasts had been skewed towards the upside by six respondents.

Five out of seven said that their growth projections could be affected by the downturn.

Based on the median poll forecasts, it was predicted that the economy would expand by 2.9% and 2.5% next year, which is a slower rate than last year’s 3.9%.

(For additional stories about the Reuters global economy poll, click here