South Korea's June inflation accelerated to the fastest pace since the Asian financial crisis, fanning expectations the central bank could deliver a 50 basis point rake hike for the first time next week to cool prices and curb capital outflows.
The consumer price index rose 6.0% in June from a year earlier, government data showed on Tuesday, the fastest since November 1998 and exceeding the central bank's 2% target for the 15th consecutive month.
In a meeting held after inflation data release, BOK deputy governor Lee Hwan-seok said the bank "needs to be particularly vigilant against further strengthening of inflationary expectations", addingcurrent inflation trends will continue for the time being. Many market watchers speculate the BOK would want to keep the rate spread between South Korea and the United States in check to slow any capital outflows."This data raises possibility of a big step hike in July," said Ahn Jae-kyun, an analyst at Shinhan Financial Investment.
The BOK sees the inflation trajectory higher than projected earlier and said it would closely assess debt repayment burdens to determine whether a half-percentage point hike would be appropriate.Even so, analysts have been warning that household debt at a record level and slowing exports growth mean the BOK shouldn't rush rate hikes.
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