SEOUL (BLOOMBERG) - The Bank of Korea (BOK) is poised to raise its policy rate by half a percentage point for the first time next month to tame inflation that is at a decade high and shore up the won, according to trader expectations signalled by market rates.

South Korea's implied policy rate in six months is around 3 per cent as at Monday (June 27), Bloomberg calculations of money market rates suggest. That indicates that the central bank may increase rates by 50 basis points once and by 25 basis points three times at its four remaining meetings this year from the current 1.75 per cent.

BOK has never raised rates by 50 basis points since interest rates became its primary policy tool in 1999, according to the central bank.

An outsized move would echo other central banks, including the Federal Reserve and the Reserve Bank of Australia, who are all seeking to control runaway inflation with bigger-than-expected hikes.

It could also help stem losses in the won, which had dropped to a 13-year low. "A so-called big-step BOK rate hike looks likely to become reality", due to an expected further acceleration in inflation, said fixed-income analyst Shin Earl at SK Securities in Seoul. He expects 10-year yields to top 3.95 per cent in the third quarter if the central bank raises rates aggressively.

Citigroup and JPMorgan Chase are both forecasting a 50-basis-point BOK rate hike next month. Expectations of higher rates have caused Korean government bonds to tumble, with three-year yields rising to an 11-year high of 3.75 per cent this month.

The country's inflation rate surged to 5.4 per cent from a year earlier in May, the fastest since August 2008. But Finance Minister Choo Kyung-ho said consumer prices may jump more than 6 per cent in June, July and August, in a KBS interview on Sunday.

The last time inflation reached 6 per cent in South Korea was in 1998. Putting further pressure on Korean policymakers to act are producer prices that surged nearly 10 per cent in May.

"For the local bond market, June through August could be painful time", with long-term yields possibly climbing above 4 per cent, said fixed-income strategist Cho Yong-gu at Shinyoung Securities.