South Korea’s central bank yesterday lifted its main interest rate by 0.25 of a percentage point to 2.5%, citing rising risks of inflation.
It was the second rate rise from the Bank of Korea this year.
It joined Asian region central banks including those from China, India, Australia, Malaysia, Thailand, Singapore and New Zealand to boost rates because of the perceived greater risk of future inflation.
"The Monetary Policy Committee of the Bank of Korea decided today to raise the Base Rate from 2.25 percent of its current level to 2.50 percent," the Bank Of Korea said in a statement.
"Looking ahead, the Committee will conduct monetary policy in such a way as to help the economy maintain price stability, while sustaining sound growth," said the BOK.
It dropped references to its pledge to keep monetary policy “accommodative” for the first time since the global financial crisis.
Unlike many countries however, the central banks of India and China have been forced to lift rates and take other actions because of the current risk of rising prices.
China in particular is struggling.
It lifted rates for the first time in three years on October 19 and has tightened the asset reserve ration four times so far this year to try and cool inflationary pressures in the housing sector and in asset prices generally.
Consumer price inflation jumped 0.7% in October from September to a 25-month high in October of 4.4%.
Food, which makes up about a third of China’s consumer price index, led the way, climbing 10.1%, but non-food items increased just 1.6%.
Producer prices reversed an easing trend and rose to an annual 5% in October after running at a yearly rate of around 4.3% in the preceding two months.
Now state media are claiming that more action is on the way with stories claiming the government is planning a "one-two punch" against food inflation in the coming weeks by implementing price controls and cracking down on speculators.
The news saw China’s Shanghai market lose 4% in value, after the sharp 5.16% fall on Friday.
For example the China Securities Journal claimed yesterday that the central government is very concerned by the rapid increase in food prices and is determined to bring them under control.
It said that the National Development and Reform Commission, the country’s top planning agency, and local governments were considering a series of actions.
Possible steps include price controls, subsidies for shoppers, a crack-down on hoarding and price gouging as well as a system whereby mayors are made responsible for a basket of food items.
Those found speculating on corn or cotton will also be punished severely, the report added.
"Price increases, particularly overly rapid food price increases, are the main economic problem faced by the country at present.
"The policies that are being considered aim to contain the momentum and will be delivered in combination as a one-two punch," the report cited an unnamed source as saying.
However, unlike past bouts of food inflation in China, there have been no major droughts or diseases to drive up prices this year.
But there has been bad flooding across much of the south and parts of the central provinces and cold weather at the start of the year, all of which have helped lift prices for food.
But speculation and hoarding is widespread.
Vegetable prices have been boosted by speculators with ginger, garlic and some medicinal herbs said to be involved.
Hoarding continues, with palm oil a recent candidate mentioned in the official media.
China has been selling sugar from official reserves to try and put a lid on wholesale and retail prices.
Petrol and diesel prices are freer now, but still subject to some control.
Xinhua, the official newsagency reported yesterday that the prices of 18 staple vegetables were 62.4% higher over the first 10 days of November compared with the same period in 2009.
The agency said, "The average wholesale price of the 18 staple vegetable prices in 36 major cities stood at 3.9 Yuan (0.58 U.S. dollars) per kilogram in the same period, up 11.3 percent from the beginning of the year, said Wang Bingnan, director of the MOC’s Market Operation Department, at a meeting to discuss vegetable supply for this winter and next spring.
"Price hikes in north China were higher than those in south China, Wang said.
"Several factors contributed to the rises, Wang said.
"Abnormal climate events such as spring cold and flooding had cut vegetable output. Increasing costs for oil, pesticides, transport and labor had also contributed to price hikes, Wang said.
"Speculation had pushed up prices for produce like garlic and ginger since September last year along with increasing prices of international agricultural commodities."
The wholesale prices of garlic were up 95.8% and ginger 89.5% in 36 cities in the first 10 days of November year on year.
