The Bank of Korea raises interest rates by half a percentage point

South Korea’s central bank has announced its first-ever half a percentage point rate hike, joining the US Federal Reserve and other central banks in aggressive monetary tightening to combat high inflation. Analysts are forecasting further rate hikes in the future.

The Bank of Korea on Wednesday raised its benchmark seven-day repurchase rate by 50 basis points — instead of the usual 25 basis points — to 2.25%, raising the rate for a third straight meeting and sixth rate hike since August 2021.

Twenty of 24 analysts polled by the Wall Street Journal were forecasting a 0.5 percentage point rise, while the remaining four were expecting a quarter percentage point rise. They all expect the bank to keep pushing borrowing costs higher in the coming months.

South Korea was the first major developed economy in Asia to start raising interest rates last year to tame inflation, but rising prices are still a challenge.

The country’s consumer inflation rate was 6.0% in June – the highest since November 1998 at the height of the Asian financial crisis. The bank expects inflation to beat its earlier forecast of 4.5% for full-year 2022.

South Korea is also under pressure to respond to the Fed’s aggressive monetary tightening, and the weaker rate gained against the greenback as higher US rates could risk a flight of foreign capital. The Bank of Korea raises interest rates by half a percentage point

Brian Lowry

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