Global Central Banks Step Off the Gas Pedal on Rate Hikes... Calls for Speed Adjustment in Korea Too

Jerome Powell, Fed Chair [Photo by Reuters]

[Asia Economy reporters Jeong Hyunjin and Moon Jewon] This year, major central banks in the US, Europe, and other countries, which had implemented large-scale monetary tightening policies, have started to ease off the accelerator on interest rate hikes and adjust their pace after confirming a slowdown in inflation growth. Concerns over an economic recession due to rapid interest rate hikes are also influencing this shift. The Bank of Korea, ahead of the Monetary Policy Committee meeting on the 24th, is also expected to take a ‘baby step’ (0.25 percentage point increase in the base rate) rather than a ‘big step’ (0.50 percentage point increase).

On the 15th (local time), Capital Economics, a UK-based economic analysis and forecasting institution, forecasted that among 20 major countries, except for Japan, Turkey, and Russia, most central banks will raise their base rates by 25bp (1bp = 0.01 percentage point) or 50bp at their next monetary policy meetings. Notably, the US Federal Reserve (Fed) and the European Central Bank (ECB) are expected to raise rates by 50bp on November 14 and 15, respectively. Capital Economics evaluated that considering these central banks have raised rates by nearly 11 percentage points since August, the size of the rate hikes is relatively smaller than before.

In particular, the Fed, ECB, Bank of England (BoE), and Bank of Canada (BoC) have all implemented at least one ‘giant step’ (0.75 percentage point increase) since August. The Fed had not taken a giant step since 1994 until this year but has raised rates by 75bp four consecutive times since June.

Jennifer McCown, an economist at Capital Economics, said that monetary policy officials believe aggressive tightening policies have been effective in controlling inflation, adding, "Central banks are now expected to slow the pace of rate hikes due to a combination of factors including economic weakness, easing domestic inflation pressures, and base rates reaching neutral levels." This is interpreted as the view that economic stimulus is gaining more support now that inflation has been curbed through aggressive tightening.

In the US, the recently released October Consumer Price Index (CPI) rose by 7.7%, significantly below the September CPI (8.2%) and market expectations (7.9%). The October Purchasing Managers’ Index (PMI) released by S&P Global also remained below the 50-point threshold at 48.2 for several months. This has strengthened expectations that the Fed will decide on a 50bp rate hike instead of 75bp.

The International Monetary Fund (IMF) also explained on the 13th that the PMI of the Group of Twenty (G20) countries has continued to deteriorate over several months, and the situation has worsened compared to when the October World Economic Outlook report was released. At that time, the IMF lowered its global economic growth forecast for next year by 0.2 percentage points from 2.9% presented in July.

The Bank of Korea is also likely to slow its pace by raising the base rate by 0.25 percentage points instead of 0.50 percentage points at this month’s Monetary Policy Committee meeting. Capital Economics also forecasted a 25bp rate hike for Korea. Given the growing expectations that the US tightening policy may ease somewhat and the won-dollar exchange rate stabilizing in the 1300 won range, there is an analysis that the Bank of Korea lacks justification to implement another big step. At last month’s Monetary Policy Committee meeting, members Park Ki-young and Seo Young-kyung, who supported a 0.5 percentage point rate hike, recently stated that "financial stability must also be considered," effectively indicating a 0.25 percentage point increase.

This content was produced with the assistance of AI translation services.