Bank of Korea Eyes US Yields Slide
Bank of Korea to Decide on Interest Rates
Eyes US Yield Slide
The Bank of Korea (BOK) is widely expected to hold its policy rate steady on Thursday, August 24, as it monitors the global economic outlook and the impact of rising US Treasury yields on the Korean economy.
The BOK's decision comes as the US Federal Reserve (Fed) is set to begin tapering its bond-buying program, which has been a major source of support for financial markets since the start of the COVID-19 pandemic.
The Fed's tapering is expected to lead to higher US Treasury yields, which could put upward pressure on interest rates in Korea and other Asian economies.
BOK's Policy Dilemma
The BOK is facing a difficult policy dilemma as it tries to balance the need to support economic growth with the risk of rising inflation.
On the one hand, the Korean economy is recovering from the pandemic, but it is still facing headwinds from global supply chain disruptions and rising energy prices.
On the other hand, inflation is rising in Korea, reaching a 24-year high of 6.3% in June. The BOK has raised its inflation forecast for this year to 4.5%, well above its target of 2%.
Expected Decision
Most economists expect the BOK to hold its policy rate steady at 0.75% on Thursday, August 24.
The BOK is likely to be cautious about raising rates too quickly, given the risks to economic growth. However, it is also likely to signal that it is prepared to raise rates if inflation continues to rise.
Market Impact
The BOK's decision is likely to have a modest impact on the Korean won and other Asian currencies.
If the BOK holds its policy rate steady, the won could weaken slightly against the US dollar. However, if the BOK signals that it is prepared to raise rates, the won could strengthen.
Comments