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(LEAD) S. Korea's key policy rate likely to peak at 3.5 pct next year: S&P

All News 14:52 December 07, 2022

(ATTN: UPDATES with additional info in last 3 paras)
By Kang Yoon-seung

SEOUL, Dec. 7 (Yonhap) -- South Korea's central bank will continue raising its key policy rate, possibly peaking at 3.5 percent in 2023, an economist at global credit appraiser S&P Global Rating said Wednesday.

The Bank of Korea (BOK) has hiked the rate by a combined 2.75 percentage points since August last year to tame inflation. The rate currently stands at 3.25 percent.

"We expect the APAC central banks not to follow very closely the U.S. Fed policy in terms of how quickly, how aggressively to increase interest rates," said Louis Kujis, an Asia-Pacific chief economist at S&P Global Ratings.

"That is in part because inflation is not as big a problem over here as it is in the U.S.," Kujis said, adding the Bank of Korea is set to continue interest rate increases, although it is expected to peak at 3.5 percent.

Kujis added S&P is "less somber" about growth in the Asia-Pacific region next year, compared to the U.S. or the eurozone, which are anticipated to post zero percent growth in 2023, considering that China is taking a "significant shift" in its COVID-19 policies.

The economists said South Korea's economic growth will likely be affected by weak exports.

"We see two main headwinds for growth next year. One is the global slowdown," Kujis said. "The more that exports matter to your economy, the more likely it is that you'll see a slowdown, and that of course affects economies like South Korea and Taiwan."

Kujis added the higher borrowing costs will also have impact as households adjust their spending as mortgage payments go up.

"We expect growth in South Korea to come down from about 2.8 percent this year to about half of that next year," he added.

South Korea's exports, meanwhile, fell 14 percent on-year to come to US$51.91 billion last month, following a 5.7 percent on-year fall the previous month, falling for two consecutive months for the first time since early 2020.

Moody's Investors Service recently lowered its outlook for South Korea's economic growth for next year to 2 percent from 2.4 percent.

The credit ratings agency said South Korea is facing multiple external risks from China's slowdown, global inflationary pressure and aggressive monetary tightening by major economies.

But Moody's maintained a "stable" outlook for South Korea's credit rating.

(LEAD) S. Korea's key policy rate likely to peak at 3.5 pct next year: S&P - 1


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