Fed Rate Hike Puts Pressure on South Korean Central Bank

The Federal Reserve has raised interest rates for the first time in over three years. The Bank of Korea (BOK) is now under increased pressure to follow suit.

The Fed raised its benchmark rate by 25 basis points, putting it between 3.75% and 4.00%. This move widens the gap with South Korea's benchmark interest rates by one percentage point. The BOK previously hiked interest rates in July and August to 3%, marking its first consecutive increase since January 2023.

Analysts believe that rising inflation, pressure on the won exchange rate, and high household debt could prompt the BOK to raise interest rates again this year. Senior Deputy Governor Kwon Min-soo said the Fed is expected to maintain its tight monetary policy, assessing risks from the Middle East situation, major countries' fiscal conditions, and uncertainties in the AI industry.

The BOK will continue to monitor financial and foreign exchange markets, with Japan and Britain scheduled to make interest rate decisions this week. Analysts believe that despite increased pressure, the BOK is more likely to raise interest rates in November than next month, as its policy focus remains on the timing and pace of hikes.