The Bank of Korea First to Do the Right Thing Hikes Rates

Clifford Bennett, Chief Economist at ACY Securities

27.08.2021 10:00 am

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The Bank of Korea

Hikes Rates. Leads the way.

South Korea's central bank does the right thing!

Raising official rates from just 0.50% to 0.75% is entirely appropriate, despite the Delta variant surge.

This will be a significant upward fillip for the currency.

Mexico also raised rates recently, citing the strong economic rebound and rising price pressures. This is the trend around the world, and South Korea being at the epicentre of a broad regional recovery has done exactly the right thing.

Even though the Delta problem will worsen before it gets better, there is no longer any need to have full crisis policy settings in the midst of a growing inflation concern.

Inflation is a global reality, due to the freedom of pricing now being experienced, and will be higher for longer than almost any economist currently anticipates. This move by South Korea will have a regional impact. Pushing others toward considering the appropriateness of current settings. Letting inflation gather too much momentum is a dangerous approach.

With inflation at 2.6% and rising, The Bank of Korea has responded appropriately.

In moving now, South Korea will experience a more gentle rate hike cycle than other nations, such as the USA and Australia, when they eventually start from a very behind the curve, out of control inflation, position.