SEOUL– A policymaker of the Bank of Korea (BOK) said Tuesday that the widening interest rate gap with the United States has deepened the challenge for South Korea’s monetary policy going forward.

Earlier this month, the U.S. Federal Reserve raised its benchmark rate by another 75 basis points to a target range of 3.75 to 4 percent.

The BOK raised its policy rate by 0.5 percentage point to 3 percent last month, but the Fed’s recent rate hike has widened the rate differential to 1 percent.

“Due to the FOMC results, the rate reversal has widened and deepened difficulty for monetary policy decisions,” Suh Young-kyung, one of the BOK’s seven monetary policy board members, told a forum in Seoul.

The widening rate differential is spawning worries that capital could leave for the U.S. in pursuit of higher returns, thereby further weakening the local currency and putting upward pressure on inflation by making imports costlier.

The BOK is set to hold this year’s last rate-setting meeting next week. It is widely expected to deliver another rate hike, but views remain divided over how sharply the borrowing cost will be raised.

Suh voiced concerns that the transfer effect of the won’s deprecation on inflation has been increasing and the risk for “double drains” in foreign exchange and financial markets has also mounted.

“Besides inflation and growth risks, foreign exchange and financial market volatility has mounted, raising the need to consider various policy tools in a comprehensive manner,” she added.

Source: Yonhap News Agency