South Korea's central bank raised its policy interest rate by an unprecedented half point on Wednesday, aiming to pull inflation from 24-year highs while balancing fear of a sharp economic downturn as business activity flounders.
by 50 basis points to 2.25%, the biggest increase since the bank adopted the current policy system in 1999, and coming even as it expects gross domestic product growth "below the May forecast of 2.7%".Twenty-seven of 32 analysts in a Reuters poll expected the bank to announce a half-point hike, while the remainder expected a quarter-point.
"If the inflation and growth trends do not change significantly, a return to 25-basis-point hikes looks appropriate for the time being," Governor Rhee Chang-yong told a news conference when asked about another 50-basis-point hike."For those vulnerable facing bigger difficulties, we at the central bank will work with the government to look for targeted policy measures to help them," Rhee also said.
The bigger-than-usual hike comes as other major central banks including the Bank of Canada and Reserve Bank of New Zealand delivered outsized hikes recently, including a third successive half-point hike by the latter on Wednesday.The U.S. Federal Reserve last month raised its key rate by 75 basis points and similar-sized moves are widely expected.
Small business loans classified as 'vulnerable', or at risk of default, rose 30.6% from the end of 2019 through March 2022, and the BOK sees the proportion increasing sharply after 2023.
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