Surprise rise in S. Korea’s interest rate to 3.75%

SEOUL: South Korea's central bank unexpectedly raised its benchmark interest rate, the second increase in three months, to prevent inflation accelerating. 

Bank of Korea governor Park Seung and his six fellow policymakers raised the overnight call rate to 3.75% at their monthly meeting in Seoul yesterday. All nine economists polled by Bloomberg expected the central bank to leave the rate unchanged. 

Central banks in Indonesia, New Zealand and the European Union have raised rates this month as near-record fuel prices and rising demand spur concern about inflation. A separate report yesterday showed South Korean consumer confidence rose in November to the highest in six months. 

Park Seung

“The central bank is taking a pre-emptive action to control prices before demand accelerates inflation next year,'' said Im No Jung, an economist at Hanwha Securities Co in Seoul. “Confidence is rising, sales are picking up and the central bank is looking at a higher growth next year.'' 

Inflation would accelerate to 3% next year from 2.7% this year, the central bank said Dec 6. 

“Both consumer price inflation and core inflation maintain overall stability,'' it said in a statement yesterday. “Nevertheless, there are latent inflationary pressures due to the economic recovery and persistently high oil prices.'' 

Central banks in Asian countries including Indonesia, Thailand, India and the Philippines have been increasing interest rates this year as rising energy costs spur inflation. The European Central Bank on Dec 1 raised its benchmark rate to 2.25%, the first increase in five years. 

On Dec 6, Indonesia's central bank raised its benchmark interest rate for the sixth time in four months to restrain inflation following government fuel price increases. – Bloomberg  

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