Bank of Korea raises rates again to quell inflation
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SEOUL - South Korea's central bank raised interest rates by half a percentage point for a second time since July on Wednesday, as a surging dollar driven by aggressive United States monetary policy tightening fanned imported inflation.
The Bank of Korea (BOK) raised its benchmark policy rate by 50 basis points to 3 per cent on Wednesday, bringing the total rate rise since August 2021 to 250 basis points.
Twenty-three of 26 analysts in a Reuters poll expected the bank to go for a half-point increase, while the remaining three expected a quarter-point rise.
The US Federal Reserve's three 75-basis-point increases have propelled a dollar rally against most other currencies, forcing policymakers around the world to review the risk of fresh inflation pressure and capital outflows. The won's 17 per cent slump in 2022 could fuel consumer price gains by making imports more expensive.
BOK governor Rhee Chang-yong has repeatedly said inflation is the No. 1 priority after it surged to a near 24-year high in July before slowing in August and September.
The BOK's move contrasts with that of the Reserve Bank of Australia, which surprised markets last week with a smaller-than-expected 25-basis-point increase as it tried to quell inflation without crashing the economy.
The median forecast in the poll showed the BOK's base rate going to 3.25 per cent by end-2022 and peaking at 3.5 per cent in the first quarter of 2023.
Almost half of respondents expected the base rate to reach 3.75 per cent in the first quarter of 2023, suggesting a bias towards higher borrowing rates with inflation at 5.6 per cent in September, far above the BOK's 2 per cent target.
REUTERS
