South Korea’s central bank announced its first-ever half-percentage-point rate hike, joining aggressive policy tightening by the US Federal Reserve and other central banks to tackle high inflation . Analysts predict 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 its usual 25 basis points – to 2.25%, raising the rate for a third consecutive meeting and its sixth increase rates since August 2021.
Twenty of 24 analysts polled by The Wall Street Journal forecast a rate hike of 0.5 percentage points, while the other four expect a rise of a quarter of a percentage point. They all expect the bank to continue to raise borrowing costs in the months ahead.
South Korea was the first major developed economy in Asia to start raising rates last year to tame inflation, but soaring prices remain a challenge.
The country’s headline 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 exceed its earlier projection of 4.5% for the whole of 2022.
South Korea is also under pressure to react to the aggressive policy tightening by the Fed and the weakness of the won against the greenback, as higher US rates could lead to foreign capital flight.