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  • The Bank of Korea (BOK) raises the base interest rate by 25 basis points to 0.75 per cent in its first rate hike since November 2018
  • Retail debt has been growing in Korea, and the Financial Services Commission has tightened limits on loans
  • Some analysts expect the BOK to lift the base interest rate again in November
  • Last week, Sri Lanka became the first country in Asia to lift interest rates since the onset of the pandemic, increasing rates from 6.1 to 6.8 per cent

The Bank of Korea (BOK) has become the first central bank of a major Asian economy to raise interest rates since the onset of the pandemic.

It follows a tightening of banking loan limits by Korea’s Financial Services Commission as retail debt – especially among the younger generations – continues to grow in Asia’s fourth-largest economy.  

On Thursday, the BOK lifted the base interest rate by 25 basis points to 0.75 per cent in its first rate hike since November 2018. Immediately after, the benchmark KOSPI index fell, while the South Korean won rose against the greenback. 

Some analysts are forecasting another rate hike from the BOK later this year. Deutsche Bank’s Chief Economist Asia Juliana Lee told CNBC’s Central Bank Watch, a November increase was likely given growth projections.

“The government is targeting vaccinating 70 per cent of its population by the holidays, and adjusting social distancing by October/November, and that should provide support for a rebound and stronger growth in the fourth quarter. We think that will pave the way for a further rate hike in November.”

Elsewhere in the Asia-Pacific

Last week, Sri Lanka became the first country in Asia to hike interest rates since the onset of the pandemic. The Central Bank raised interest rates from 6.1 to 6.8 per cent. 

The Reserve Bank of New Zealand was also expected to lift the cash rate from a record low of 0.25 per cent this week. However, a growing COVID-19 outbreak and fresh level four restrictions prompted the central bank to stick to its existing policy settings. 

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