SEOUL—South Korea’s central bank raised its policy interest rate by an unprecedented half point on Wednesday, aiming to pull inflation from 24-year highs while balancing fear of a sharp economic downturn as business activity flounders.
Though 6 percent inflation prompted calls for action, a policy rate widely seen peaking by year-end at 2.75 percent—five times higher than at the onset of the COVID-19 pandemic over two years ago—would pile pressure on the world’s most indebted consumers who are also contending with mortgage rates at nine-year highs.
The Bank of Korea (BOK) raised its benchmark interest rate by 50 basis points to 2.25 percent, the biggest increase since the bank adopted the current policy system in 1999, and coming even as it expects gross domestic product growth “below the May forecast of 2.7 percent.”…