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The Bank of Korea may take evasive action by raising its base rate for the second time this year, after the Korean won dropped against the U.S. dollar to its lowest point in nearly four years.
This month the central bank hiked the benchmark interest rate a quarter of a percentage point to 5.25 percent for the first time in a year, in a bid to tame rising consumer inflation.
Economic experts say, unless further depreciation of the Korean currency against the greenback is curtailed soon, the BOK may readjust its base rate.
Some had predicted the rate would stay put this year, but growing global demand for the U.S. dollar, Korea's trade deficit, and a lingering credit crunch abroad are making prospects murkier.
Part of the blame is being laid on Korean monetary authorities who have reportedly dumped over US$20 billion into the market to cushion the won's value from further losses.
An export-driven economy like Korea¡¯s has much to lose in light of expensive energy prices, a weak national currency, and subdued domestic demand.
The central bank says inflationary pressure is four times greater when the country's exchange rate goes up by one percent than when global oil prices jump at the same rate.
Amid worries of a stronger base rate, some analysts contend the BOK should freeze the current interest rate rather than risk rattling the already lackluster economy with a hasty mark-up.
Arirang News
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