SEOUL, South Korea (AP) — South Korean shares plummeted 2.4% on Friday after the country’s central bank raised its key interest rate to fight inflation, a move that raised concerns about the impact on the country’s economic growth..
The benchmark Kospi lost 55.48 points to close at 2,263.75. The index had gained 1.4% the previous day..
The Bank of Korea raised its benchmark interest rate by a quarter percentage point to 1.5% from 1.25%, the first increase in almost three years. The decision was widely expected as the central bank tries to combat rising consumer prices fueled by soaring energy and commodity costs..
Also Read | South Korea joins list of economies raising interest rates to rein in inflation.
“The inflation outlook has changed significantly,” the bank said in a statement. “Upside risks to inflation have increased amid a more persistent increase in international commodity prices and a recovery in domestic demand.”.
The bank said it will maintain its accommodative monetary policy stance to support economic growth. But it warned that it will take further tightening measures if necessary to keep inflation in check..
The rate hike raised concerns among investors about the impact on the country’s economic growth. The South Korean economy has been recovering from the pandemic, but the central bank has warned that the recovery could be weaker than expected due to the rising cost of living..
“The central bank’s rate hike is a necessary step to address inflation, but it could also weigh on economic growth,” said Kim Young-jun, an analyst at SK Securities. “The key question is whether the bank can raise rates aggressively enough to contain inflation without derailing the economic recovery.”.
Also Read | In 1st since 2018, Bank of Korea raises rate to 1.5% to combat inflation, amid economic recovery.
The rate hike also weighed on the Korean won, which weakened against the U.S. dollar. The won fell 0.9% to 1,272.8 per dollar..
In other trading, Hong Kong’s Hang Seng index fell 1.3% to 20,848.39. China’s Shanghai Composite index lost 0.6% to 3,222.25. Japan’s Nikkei 225 index gained 0.4% to 27,227.78..
The S&P 500 futures fell 0.6%. The Dow Jones Industrial Average futures lost 0.7%. The Nasdaq 100 futures declined 0.8%..
The price of oil fell 3.9% to $96.29 per barrel. The price of gold rose 0.3% to $1,871.20 per ounce..
