Bank of Korea Raises Rate, Tightens Policy to Curb Inflation

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By Kwanwoo Jun
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South Korea’s central bank has raised its base rate for the second time in three months as it seeks to curb accelerating inflation and rising domestic debt.

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The Bank of Korea on Thursday raised its benchmark seven-day repurchase agreement rate by 25 basis points to 1.00%. The bank had raised the rate to 0.75% in August from a record-low 0.50%.

All 34 analysts surveyed by The Wall Street Journal before the decision had forecast a rate hike in November. Most analysts expect the bank to hike rates further next year.

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The bank has indicated that it may revise its inflation forecast upwards, indicating a pressing need to contain price increases. Consumer prices rose to their highest level in nearly a decade in October and topped the annualized 2.0% target for seven consecutive months.

The bank is looking to dial back the stimulus brought by the pandemic as economic recovery continues on sharper exports and fiscal stimulus. Korean exports expanded for the 12th month in a row in October, driven by solid demand for semiconductors and other goods.

The bank expects the economy to grow by 4.0% in 2021 and 3.0% in 2022. The economy hit by the pandemic declined by 0.9% in 2020.

Write to Kwanwoo Jun at [email protected]

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