- South Korea Becomes The First Country to Raise Interest Rates in Pandemic Era
- CEOs Expect Strong Growth Next Year
- ECB Minutes from July 21-22 July Released
South Korea Becomes The First Country to Raise Interest Rates in Pandemic Era
The Central Bank of South Korea increased the policy rate for the first time in nearly three years.
While South Korea is the first major Asian economy to end the monetary policy measures introduced during the pandemic, rising household debt poses new threats to the economy. The move is aimed at helping curb the country’s household debt and home prices, which soared in recent months.
The central bank’s monetary policy board increased the policy rate by 25 basis points to 0.75 percent.
The decision to raise rates was not unanimous, according to Bank of Korea Governor Lee Ju-yeol, with one board member advocating for rates to remain unchanged. Only 16 out of 30 economists polled by Reuters expected the rate hike on Thursday.
South Korea’s benchmark index, Kospi, fell 0.18% following the announcement. The Korean won weakened.
Central bank officials have been signaling for rate hikes since May, but expectations for an increase have been dimmed recently due to the coronavirus cases that have been on the rise again.
Also, in the Asia-Pacific region last week, New Zealand was expected to become the first advanced economy to increase rates in the wake of the coronavirus crisis.
However, the day before the monetary policy decision was announced, Prime Minister Jacinda Ardern imposed a nationwide lockdown.
CEOs Expect Strong Growth Next Year
CEOs of the world’s leading companies are split on the business implications of the pandemic as they expect strong growth for the following year.
According to Deloitte’s research with CEOs of the world’s leading companies, 77 percent of senior executives say their company will grow ‘strong’ or ‘very strong in the next year. In the research, it is noteworthy that all the CEOs of industrial product manufacturing companies expressed their views in the direction of growth. Technology (90 percent), professional services (83 percent), and healthcare (78 percent) companies follow the industrial products sector in solid growth prospects.
While CEOs have voiced their growth prospects, there is disagreement over the commercial implications of the pandemic. While 53 percent of CEOs say that the reflections of the epidemic on the economy will improve by the end of 2021, 47 percent say that this will continue for a longer time.
As a result of the epidemic forcing significant sections of the country’s workforce to quit their workplaces and begin working remotely, 82 percent of CEOs expect to increase expenditure on technology modernization efforts dramatically. Another two-thirds of respondents – almost 67 percent – said they intend to boost spending on artificial intelligence, while another 58 percent said they expect to increase spending on sustainability.
According to the CEOs, innovation and new products (54 percent), technology application (52 percent), accelerated or pent-up consumer demand (38 percent), increased operational efficiencies – thanks to things like a hybrid workforce – (34 percent), and price increases due to a recent inflation surge are driving their businesses growth.
ECB Minutes from July 21-22 July Released
The minutes of the monetary policy meeting of the ECB Governing Council held in Frankfurt on July 21-22 have been published.
The minutes revealed that members were keeping a close eye on price increases and inflation and were concerned that the new wording would force the ECB into lengthy policy commitments that could damage its credibility.
The new wording states that interest rates will not rise until the ECB forecasts that inflation will reach its 2 percent target “well ahead” of its projection horizon. That policy rates will be raised only if the evidence is sufficient to expect that the pace of price growth will persist “durably.” It also states that headline inflation and underlying inflation should be heading towards 2 percent.
In the minutes, where the members discussed the direction with a new word in interest rates, it was stated that the members emphasized that the order on interest rates should be revised.
Although “a large majority” of council members backed the revised guidance, “a few members upheld their reservations, as the amended formulation did not sufficiently address their concerns,” revealed the minutes of the ECB.
In the minutes, where the members expressed their concerns about the impact of the Delta variant on the economy, it was stated that the variant created new uncertainties in the economic recovery.