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South Korea’s inflation hits 24-year high | Business and Economy


The consumer price index rose 6% in June, stoking expectations of a major central bank rate hike.

South Korea’s inflation last month hit its highest level since the Asian financial crisis more than two decades ago, adding to signs of growing stress on its trade-dependent, open economy and denting its economy. raising expectations of a major interest rate hike by the central bank.

Data showed on Tuesday the consumer price index rose 6% faster than expected in June from a year earlier – its highest level since November 1998 – while other data showed Foreign exchange reserves fell the most since late 2008.

Economists and market experts have dismissed any immediate risks of Asia’s fourth-largest economy falling into crisis as it has many times in the past, thanks to significant improvements in the balance of payments. international and debt records.

But some warn governments and central banks are facing a difficult period.

“Policy making will become more difficult when they have a mix of rising inflation risks and continuing downside risks to economic growth,” said Park Seok-gil, an analyst at JPMorgan Chase Bank. taking place during this time”.

High inflation has further reinforced the case for the central bank to raise its policy rate by an unprecedented 50 basis points at its meeting next week.

South Korea’s vulnerability to external shocks, as it relies heavily on foreign trade and cross-border capital flows, has put it under pressure with capital outflows from the domestic stock market increasing. up and the won depreciated.

Reflecting the strain, the credit default swap premium on the country’s five-year global sovereign bonds rose 30.57 basis points this year to 52.54, the highest since the the first day of the COVID-19 pandemic in early 2020.

No sign of panic

Domestic financial markets showed no signs of panic on Tuesday, with the perception that the problems facing the country were mainly foreign and were a global trend. Stock, bond and currency markets all recorded small gains.

However, pressure is growing on the government of Conservative President Yoon Seok-yeolwho started the job just two months ago and has yet to provide a broad policy blueprint on how to set itself apart from his liberal predecessor.

President Yoon ordered public sector reforms, called for a sell-off of idle assets and savings in spending, and promised that he would chair an emergency meeting on the economy every week.

Since Yoon took office, the central bank has sold dollars to shore up the won’s plunge to its weakest since the 2008-09 global financial crisis from upset investors while the currency dealing with the continuous capital outflow from the stock market.

The Bank of Korea said on Tuesday it had sold a portion of its foreign exchange reserves for the fourth straight month in June to “reduce volatility in the foreign exchange market,” a phrase used by the South Korean government. used to describe their intervention.

It did not disclose how much it sold, but the dollar’s intervention as well as the breakout against other top coins caused the dollar value of its foreign exchange reserves to drop by 9. $43 billion in June.

Currency traders dismissed the drop in foreign exchange reserves, saying it was mainly expected and could also be due to changes in the value of the dollar, while warning of sharp changes. Stronger and more disordered could be the problem.

South Korea’s foreign exchange reserves were ranked 9th in the world at the end of May and stood at $438.28 billion, enough to cover more than 7 months of imports based on monthly averages this year.



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