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By Kwanwoo Jun
South Korea’s central bank went for a second outsized rate increase in three months in response to the aggressive U.S. monetary policy tightening and high inflation at home.
The Bank of Korea raised its benchmark seven-day repurchase rate by 50 basis points to 3.00% on Wednesday. The bank’s latest move followed its quarter-percentage-point rate rise in August after its first-ever half-percentage-point increase in July.
Twenty-two of 25 analysts surveyed by The Wall Street Journal had expected the bank to resume the outsized rate increase, citing its pressing need to respond to the Fed’s faster-than-expected pace of rate increases and still high inflation at home.
Korean policy makers have been concerned about the won’s steep decline against the greenback, as the Fed lifted federal funds rates by 75 bps at each of its past three meetings and could make another big such rate increase in November. The weaker won could risk a flight of foreign capital from the country.
South Korea’s headline inflation softened for a second consecutive month to 5.6% in September but remained well above the BOK’s 2% annual target.
BOK officials expect inflation to remain above 5% in the near term.
Inflation in South Korea averaged 2.5% in 2021.
Write to Kwanwoo Jun at kwanwoo.jun@wsj.com
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