Korea to Follow Australia`s Lead in Raising Interest Rate

Global media and institutions yesterday predicted Korea will become the second country in the Group of 20 economies to raise its benchmark interest rate, following Australia.

Australia raised its key interest rate Tuesday as the first in the G20 to do so since the start of the global financial crisis last year. Many experts say Korea will be the second as part of an exit strategy given its rapid recovery.

Deutsche Bank said in a report that Korea will be the second G20 country to raise its interest rate.

“Korea is recovering at a fast clip from the economic downturn, and its inflation is rising. So the country will return its key interest rate back to normal ahead of the United States and Europe in the fourth quarter,” the report said.

“The interest rate hike is expected in November, but could be delayed one or two months due to a steep rise in the won’s value and political pressure.”

CBS MarketWatch also said Korea will be the next country to raise interest rates since it has expressed a will to do so, like Australia.

The Wall Street Journal quoted Royal Bank of Scotland economist Sanjay Mathur as saying Korea is likely to raise its rate, but that the Bank of Korea will probably opt for a freeze this month.

In Istanbul, Turkey, visiting Bank of Korea Gov. Lee Seong-tae yesterday hinted at an independent move to raise rates at the annual World Bank-International Monetary Fund meetings.

“We will pursue an exit strategy under international cooperation, but this is in principle and each country can decide on its own because circumstances are different country by country,” Governor Lee told reporters.

cha@donga.com