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Dow Jones Newswires: Financial institution of Korea raises rates of interest and tightens insurance policies to comprise inflation

The South Korean central bank hiked its key interest rate for the second time in three months to contain accelerated inflation and rising household debt.

The Bank of Korea raised its reference rate on seven-day repurchase agreements by 25 basis points to 1.00% on Thursday. The bank had raised the interest rate from a record low of 0.50% in August to 0.75%.

All 34 analysts polled by the Wall Street Journal in the run-up to the decision had forecast a rate hike in November. Most analysts assume that the bank will continue to raise the key interest rate in the next year.

The bank has indicated that it may revise its inflation forecast upwards, suggesting that price growth is in dire need of containment. Consumer prices hit their highest level in nearly a decade in October, beating the annual target of 2.0% for seven consecutive months.

The bank is trying to turn back the incentives created by the pandemic as the economic recovery continues on the back of buoyant exports and fiscal stimulus. Korean exports rose for the 12th straight month in October on solid demand for semiconductors and other goods.

The bank expects the economy to grow 4.0% in 2021 and 3.0% in 2022. The pandemic-hit economy contracted 0.9% in 2020.

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