8/16/2008

On the up

Interest rates go up in South Korea

South Korea's central bank, the Bank of Korea (BOK), raised its policy interest rate by 25 basis points on August 7th, following the lead of other Asian central banks that have begun tightening monetary policy in an effort to tame soaring inflation. The bank's decision is likely to have been a difficult one, however, given simultaneous fears of an economic slowdown.

The BOK raised its benchmark base rate from 5% to 5.25%. This was the bank's first rate hike in a year, and the accompanying monetary-policy statement indicated that the need to subdue inflation expectations was one of the main reasons for the hike. The bank's statement also acknowledged that the domestic economy was weakening. The fact that it went ahead with the rate hike anyway suggests that South Korean policymakers are very much in the same quasi-stagflationary boat as those in many other Asian economies, which have been forced to raise borrowing costs even as concerns about slower economic growth--and the impact of the US's economic and financial-sector woes on other countries--have intensified. ...



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