South Korea's Central Bank Raises Benchmark Rate For First Time In Nearly Two Years

South Korea has become the first major Asia-Pacific economic power to see its central bank raise interest rates since the start of the COVID-19 pandemic.

What Happened: The Bank of Korea upped its benchmark rate to 0.75%, a 25-basis-point increase from its 0.50% record low. This is the first increase in the nation’s benchmark rate since September 2018.

“Despite today’s hike, financial conditions remain accommodative,” said Lee Ju-yeol, governor of the Bank of Korea. “We are seeing some side effects from the unusually loose conditions of the past year-and-a-half, so we will normalize interest rates in accordance with the economic recovery.”

Lee added the central bank “won’t either rush or hesitate” to enact additional rate hikes, although he noted the actions taken by the U.S. Federal Reserve Bank were “particularly” important in shaping his nation’s policy strategies. The Bank of Korea also predicted the nation’s gross domestic product will expand to 4% for 2021 while inflation will average 2.1%.

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What Didn’t Happen: South Korea was not expected to be the first Asia-Pacific economy to raise rates in the wake of the pandemic. Last week, many financial experts were anticipating a rate hike from New Zealand’s central bank on Aug. 18.

However, that action was put on hold as New Zealand went into a nationwide lockdown following the confirmation of a new COVID-19 infection.

"Today’s decision was made in the context of the government’s imposition of Level 4 COVID restrictions on activity across New Zealand," said the monetary policy committee of the Reserve Bank of New Zealand.

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