Bank of Korea Raises Key Rate to 3% To Tackle Inflation

The Western media as well as the Korean media are not reporting what's really stoking massive inflation around the globe. Of course, an increase in oil prices is only one factor.

From Bloomberg:

The Bank of Korea raised interest rates for the second time this year after inflation exceeded its target ceiling for two consecutive months.

Governor Kim Choong Soo boosted the benchmark seven-day repurchase rate to 3 percent from 2.75 percent, the central bank said in a statement in Seoul today. The decision was predicted by all 15 economists surveyed by Bloomberg News.

South Korea joined Thailand and Vietnam in raising borrowing costs this week as a surge in oil prices threatens the exacerbate inflation pressures throughout the region. In South Korea, the BOK faces the challenge of taming inflation without choking off an export-led recovery that has bolstered profits at automakers including Hyundai Motor Co.

“The question is how aggressive the BOK would be to raise rates further in a fight against inflation,” said Lee Sang Jae, an economist at Hyundai Securities Co. in Seoul. “It depends on how much higher oil prices would affect the global economy, especially the U.S. and other advanced countries.”

The won dropped 0.5 percent to 1,121.35 per dollar as of 1:08 p.m. in Seoul, according to data compiled by Bloomberg, while the Kospi benchmark index fell 1 percent.

Consumer prices climbed 4.5 percent in February from a year earlier, breaching the central bank’s target of average inflation between 2 percent to 4 percent through 2012. The monetary authority predicts inflation will accelerate to 3.5 percent this year from 2.9 percent in 2010.
Price expectations are climbing in the Asia’s fourth- largest economy, adding to signs the BOK is behind in raising the rate from a record low. President Lee Myung Bak has declared “war” on inflation, saying it must be contained at 3 percent, a level exceeded in each of the past six months.

“The Bank of Korea, along with other central banks in the region, will remain on a tightening trajectory throughout this year,” said David Cohen, head of Asian forecasting at Action Economics LLC in Singapore.

The central bank today also boosted the interest rate for loans extended to small-sized companies through commercial banks to 1.5 percent from 1.25 percent. It raised the benchmark rate by 25 basis points each in July, November and January from a record-low 2 percent.

South Korea’s economy expanded 0.5 percent in the three months through December from the previous quarter, when it grew 0.7 percent. For the whole of 2010, gross domestic product increased 6.1 percent, the fastest pace since 2002. The Bank of Korea forecasts 4.5 percent economic expansion in 2011.

http://www.bloomberg.com/news/2011-03-10/bank-of-korea-raises-key-interest-rate-to-3-as-inflation-exceeds-target.html