MNI BRIEF: Bank of Korea Raises Policy Rate By 50bp to 3%

The Bank of Korea on Wednesday raised its policy interest rate to 3% from 2.5% as it maintained its resolve to tame inflationary pressures, Yonhap News Agency reported.

The rate hike indicated the BOK took into consideration the widening interest rate gap between the U.S. and South Korea, which had sparked a slide in the Korean won to its lowest point against the U.S. dollar since 2009. A weaker won adds to inflationary pressures.

BOK Governor Rhee Chang-yong said last month that expectations for U.S. interest rates to stabilise around 4% had "changed a lot" in terms of the Bank's thinking on monetary policy. (See MNI STATE OF PLAY: BOK Guides to 25bps But Tested by Fed View).

The 50-basis point hike was bigger than the 25-basis point hike deployed in August, confirming a backflip on its then guidance for "gradual" rate rises of 25bp. The next policy-decision meeting is scheduled for November 24.

The International Monetary Fund on Tuesday lowered its forecast for South Korea economic growth in 2023 to 2% from 2.1% but raised its 2022 growth forecast to 2.6% from 2.3%.