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South Korea Raises Interest Rate For 2nd Time In Three Months

Economy grew 4% in the third quarter thanks to robust exports of semiconductors and petrochemical products


Korea
An employee of the Bank of Korea holds a stack of 50,000 won banknotes. Photo: Reuters

 

South Korea’s central bank raised its policy interest rate on Thursday, the second increase in three months, amid concerns about rising household debt and inflation.

The Bank of Korea‘s monetary policy board lifted borrowing costs by 25 basis points to 1.00% – a move expected by 29 of 30 analysts in a Reuters poll.

“This is just one more step in a gradual tightening cycle which began in August and will extend well into 2022,” said Alex Holmes, Asia economist at Capital Economics. “We expect another three 25bp hikes next year.”

After raising interest rates for the first time in nearly three years in August, consumer inflation in Asia’s fourth-largest economy accelerated further to the highest in nearly a decade of 3.2% in October, far above the bank’s current annual forecast of 2.1%.

 

Interest Rate Hikes

The economy grew 4% in the third quarter, thanks to robust exports of semiconductors and petrochemical products. Analysts now see the interest rate reaching 1.25% in the first quarter and 1.50% by end-2022.

The moves follows that of the Reserve Bank of New Zealand, which on Wednesday raised interest rates for the second time in two months.

The rate decisions by Asia-Pacific economies are being closely watched by other central banks, including the US Federal Reserve, European Central Bank, Bank of Canada and Bank of England, analysts have said.

 

  • George Russell and Reuters

 

 

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George Russell

George Russell is a freelance writer and editor based in Hong Kong who has lived in Asia since 1996. His work has been published in the Financial Times, The Wall Street Journal, Bloomberg, New York Post, Variety, Forbes and the South China Morning Post.

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