By Shaloo Shrivastava

BENGALURU (Reuters), – South Korea’s central banks are likely to raise their benchmark rate for the second time in a row on Thursday. They want to curb inflation which is running at twice its target. A Reuters poll revealed that rates will rise year over year to reflect this.

The fourth-largest Asian economy saw inflation rise to more than 13 years high at 4.8% in April. This was due to repercussions of the Russia/Ukraine war as well as a weakening win, down 7%, that pushed up prices. For more than one year, inflation has not exceeded the target of 2.0% set by central banks.

Only one of 28 economists polled may 17-23 predicted that the Bank of Korea will increase its policy rate 25 basis points, to 1.75%, at its May 26 meeting.

The bank was among the first to increase rates following the pandemic. It has increased the base rate by 100 basis points cumulatively since August 2021.

According to 17 out of 28 economists’ consensus, the BoK would like to make a follow-up to its May decision with two more rate hikes. One per quarter.

The expected rate at the end of this year was 2.50%. Seven other estimates were 2%, and one was 1.75%.

According to the majority, the view has increased 25 basis points over the April poll. This brings rates up to levels last seen in 2014’s second half.

However, there’s no agreement that rates will rise beyond this point.

According to Oh Suktae, economist at Societe Generale. (OTC): “It would prove difficult for policymakers extend the rate-hike cycles into 2023 as we expect the peak out of inflation in 2H22.”

Another poll conducted last month found that South Korean inflation would average 3.3% in 2019 and fall to 2.0% by 2023.

Nine economists provided an estimate of the end-2023 rates in their latest survey. Four said 2.255% and nine others said 2.50%. The rest stated 2.0%.

The BoK has been under pressure this year to continue hiking, even though the BoK’s largest central bank is raising rates aggressively.

Another Reuters survey found that the U.S. Federal Reserve would raise the key interest rate by 2.50-2.75% in the year to 2.20-22.55%, as opposed to the 2.00-2.25% forecast just a month earlier. [ECILT/US]

Krystal Tan of ANZ, an economist said that a deteriorating position in the balance of payments will be a catalyst for the BoK’s decision to take action sooner than usual.

Rhee, BoK’s recently-elected Governor, stated earlier this month that he might consider larger interest rate hikes in the coming months.