S Korea hikes interest rates again despite economic worries

South Korea lifted interest rates for the tenth time in 18 months as part of its drive to tame inflation, despite growing concerns over an economic slowdown.

The move is in line with other central banks who are still battling to rein in prices, which surged last year after Russia’s invasion of Ukraine sent the cost of energy and food soaring while China’s zero-Covid hit supply chains.

The Bank of Korea (BOK) lifted borrowing costs 25 basis points to 3.50 per cent -– the highest since 2008 –- the eighth raise since January last year.

The hike was “warranted to ensure price stability, as inflation still remains high and is projected to be above the target level for a considerable time”, the BOK said in a statement.

“The board deems it warranted to maintain the restrictive policy stance with an emphasis on ensuring price stability, as inflation is expected to remain high above the target level, although the domestic economic growth rate has slowed,” it said.

The bank’s rate increases were partly driven by a need to keep pace with the US Federal Reserve, prevent foreign capital outflows and stabilise the local won currency, which plunged to a 13-year-low last year before bouncing back.

“Looking ahead, the board sees global economic growth and global financial markets as likely to be affected largely by the pace of global inflation slowdown, monetary policy changes in major countries and US dollar trends.”

Consumer inflation, which hit five per cent in December, continues to be a major concern for the BOK, which projected price increases will hover around that level until the end of February but soften to 3.6 per cent by the end of the year.