SEOUL, Oct. 12 (Xinhua) -- South Korea's central bank on Wednesday raised its policy rate to curb inflation, delivering five back-to-back rate hikes for the first time.
Bank of Korea (BOK) Governor Rhee Chang-yong and other monetary policymakers decided to lift the benchmark seven-day repurchase rate by 50 basis points to 3.00 percent.
The decision was not made unanimously as two policymakers claimed a 25-basis-point rate hike.
It was the second time that the central bank hiked its key rate by half a percentage point, marking the fifth straight rate hike for the first time.
The BOK set off its tightening monetary policy since August last year, raising the benchmark rate by 25 basis points in April, May and August and by 50 basis points in July respectively.
The Wednesday hike was in line with market expectations. According to a Korea Financial Investment Association survey of 100 fixed-income experts, 100 percent predicted the rate increase this month.
The survey showed that 89 percent of respondents expected a 50-basis-point rate hike.
The BOK has been under pressure to counter the still high inflation, which stayed at a level nearly tripling the bank's mid-term inflation target of 2 percent.
The country's consumer price inflation gained speed this year from 3.6 percent in January, 4.1 percent in March, 5.4 percent in May and 6.3 percent in July each, before slowing to 5.7 percent in August and 5.6 percent in September.
The BOK said in a statement after the rate-setting meeting that consumer price inflation remained high due to the accelerating price increases in personal services and processed food products, although the price gain of petroleum products moderated.
Inflation expectations, which measure the outlook among consumers over headline inflation for the next 12 months, stood at 4.2 percent in September.
It continued to fall for the second successive month after hitting a record high of 4.7 percent in July, but expectations hovered high for inflationary pressure.
The U.S. Federal Reserve's swift rate hikes put the BOK on alert as the belated response may force foreign fund out of the South Korean financial market and lower the value of the South Korean currency versus the U.S. dollar further.
The depreciation of the local currency would increase energy import costs, putting additional inflationary pressures on the South Korean economy.
The BOK forecast that consumer price inflation would remain high for a considerable time as the impact of the rising won/dollar exchange rate acts as additional inflationary pressure.
The Fed took a giant step for the third consecutive time in September to hike its key rate by 0.75 percentage points to a range of 3.00-3.25 percent, lifting its benchmark rate above the South Korean policy rate.
Expectations ran high for the Fed to tighten its monetary policy stance further later this year to rein in inflation.
Market watchers forecast that the BOK would raise rates further, setting their target policy rate between 3.25 percent and 3.50 percent by the end of this year.
Regarding the target policy rate, the BOK governor told a press conference that it remained uncertain what would be the peak of the policy rate hikes, saying some of the monetary policymakers saw the peak rate stay at a lower level than the market expectations.
Concerns also mounted over the economic downturn as higher borrowing costs would expand the debt-servicing burden for households, which have suffered from record-high debts.
The increased debt-servicing burden was expected to weigh on private consumption, while high inflation may reduce real income for households.
The BOK said the country's economic growth would slow gradually, affected by the global economic slowdown and the increase in interest rates.
Latest comments