Image: Reuters Berita 24 English - In order to combat inflation , which is currently growing at its fastest rate in 24 years, South Korea...
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| Image: Reuters |
Berita 24 English - In order to combat inflation, which is currently growing at its fastest rate in 24 years, South Korea's central bank announced a historic half-point interest rate increase on Wednesday.
As demand grows for policymakers to move more quickly, the Bank of Korea (BOK) increased its benchmark policy rate by 50 basis points to 2.25 percent. This is the largest rise since the bank adopted the present policy system in 1999.
In a Reuters poll, 27 out of 32 economists predicted the bank would seek an unusual half-point increase, while the remaining 5 predicted a quarter-point increase.
The decision might prevent the won from losing more ground after it fell 9.4% against the dollar this year, ranking among the worst performers among emerging markets.
With a resource-poor nation struggling with rising energy prices, made worse by the conflict in Ukraine, inflation threatens to become entrenched in light of Wednesday's action, which keeps the BOK at the vanguard of global monetary tightening.
Other significant central banks, such as the Bank of Canada and the Reserve Bank of New Zealand, recently announced larger-than-usual rate increases. The U.S. Federal Reserve increased its benchmark rate by 75 basis points last month, and is anticipated to make subsequent adjustments of a similar magnitude.
Although Governor Rhee could retain the option of a another +50 bps rate rise on the table, "we expect back-to-back 50 basis points hikes by BOK in July and August to be less likely," said Citigroup analyst Kim Jin-woo.
"The press conference and the bank's monetary policy announcement may indicate an anticipatory "tightening" of monetary policy to control inflation expectations."
At 02:10 GMT, Governor Rhee Chang-yong will hold a press conference.
The majority of specialists predict that South Korea's policy rate would increase from 2.25 percent in the May survey to 2.75 percent by the end of this year.
The BOK predicts that the GDP will grow by 2.7% this year.
