The Bank of Korea delivered back-to-back interest rate hikes and forecasts further aggressive increases to bring consumer inflation down from 13-year highs. The country’s central bank announced Thursday that it will raise the Base Rate by 25 basis points, to 1.75% from 1.5%, the highest since mid-2019.
Reuters is reporting that Governor Rhee Chang-yong said at a news conference after the six-member board’s unanimous rate decision that the central bank’s “policy focus will be on price stability for some time, and it would be appropriate to say that (time frame) would be for a few months, for now.”
Per the bank’s economic outlook, South Korea’s real GDP is projected to grow by 2.7% in 2022 and 2.4% in 2023, with the country’s economy expected to continue to recover because of the easing of domestic social distancing measures, although the worsening of external conditions such as China’s lockdowns and the Ukraine crisis will be downside factors.
Private consumption is expected to continue its recovery thanks to the lifting of social distancing measures and improvement of income conditions, and while facilities investment has slowed due to recent supply chain disruptions, it is expected to show a modest recovery trend.
CPI inflation is forecast to record 4.5% and 2.9% in 2022 and 2023, respectively. It is expected to exceed the previous forecast level significantly as inflationary pressure has expanded due to rising raw material prices, deepening supply chain disruptions, and the lifting of social distancing measures.
Investors seeking an easy and inexpensive way to invest in South Korea’s recovering economy may want to consider the Franklin FTSE South Korea ETF (FLKR), which tracks an index of large and mid-size companies in South Korea. This single-country ETF can be especially useful for investors who mix and match emerging and developed markets funds from different issuers since issuers differ on how South Korea is classified.
FLKR has an expense ratio of 0.09%.
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