South Korea’s central bank took the highly unusual step on Wednesday of raising its target policy rate by 0.5 percentage point (pp) to 2.25% from 1.75%. 

The speed of the rise, which still leaves BOK policy lagging behind the Federal Funds Rate ahead of the next meeting of the Fed’s Federal Open Market Committee (FOMC) later this month, appears to be designed to achieve the following goals. 

First, it is a step to ensure that the exchange rate remains stable. An excessively strong dollar is bad news for South Korean consumers and firms, but also for U.S. exporters. The BOK’s