In 4th paragraph, corrections made to clarify that milestone is for over a decade and not two decades.

By Tushar Goenka

BENGALURU, Reuters – The Bank of Korea will likely raise its policy rate to the level it had before Friday’s pandemic, according to a Reuters poll. This is to curb rising inflation and to reduce the amount of debt households take on in order to purchase property.

A Jan. 5-11 Reuters poll revealed that 25 percent of the 35 respondents said the BOK would increase its base rate to 1.25% by raising it by 25 basis points at its Jan. 14, policy meeting. The BOK’s February 2020 base rate was at this level just prior to the outbreak of the coronavirus epidemic.

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.

Over a decade ago, rates have not been raised at back-toback BOK meetings.

Paik Yoonmin, fixed income analyst at Kyobo Securities, stated that “Economic uncertainties are growing at home and overseas, but Governor Lee Juyeol reaffirmed the will to normalise monetary policies to respond to financial inequalities through remarks about rising housing prices, increasing household debt, and other comments.”

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

The fourth-largest Asian economy was hit by inflation last year at its fastest pace since 2011. This far exceeded the central bank’s forecasts. It suggests that policymakers would be more likely to experience higher prices than they anticipated.

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.

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.

A further question was answered by six of the seven respondents who said that their inflation projections could be skewed to the upside.

Five of the seven mentioned risks were to growth forecasts that they feared would be affected by the negative.

According to the poll’s median forecasts, the economy is expected to grow 2.9% and 2.5% in this year and next. This represents a decrease from 3.9% last year.

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