South Korea raises rates to pre-pandemic level

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South Korea has increased its base rate of interest to where it was before the pandemic, as it tries to contain rising inflation and soaring household debt.

The Bank of Korea’s (BOK) widely expected decision to raise the rate to 1.25% was its third hike in six months.

Central banks around the world are trying to balance the impact of Covid-19 measures against inflationary risks.

In August, the country became the first major Asian economy to raise rates since the start of the coronavirus era.

Surging inflation has ramped up pressure on South Korea’s policy makers to take action, as consumer inflation for 2021 as a whole jumped to 2.5%.

That was the fastest pace of price rises since 2011 and a sharper increase than projected by the BOK.

Over the last two years, central banks, governments and international financial bodies have pumped trillions of dollars into the global economy to help cushion the impact of restrictions put in place to slow the spread of the coronavirus.

Now, policy makers in countries around the world are starting to dismantle those emergency stimulus measures.

South Korea has been at the forefront of the shift by the world’s central banks to wind down the huge amount of stimulus as they aim to curb rising consumer prices.

The US Federal Reserve has signalled that it plans to increase its interest rate three times this year.

That comes as prices in America are rising at their fastest rate in almost 40 years, with inflation up 7% year-on-year in December.

In the UK, the Bank of England raised interest rates last month for the first time in more than three years, in response to calls to tackle surging price rises.

That came after official figures showed the cost of living had surged by 5.1% in the 12 months to November, the highest level for a decade.

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