At its monetary policy meeting on March 10th the Bank of Korea (BOK, South Korea's central bank) raised its main policy interest rate, the official cash rate (OCR), by 25 basis points, to 3%. The most recent previous increase in the OCR had occurred in January. Similar to that increase, the latest rate rise was driven by the BOK's desire to prevent a sustained pick up in inflation-in January and February inflation rose by 4.1% and 4.5% year on year respectively, above the BOK's 2-4% target range-amid signs of strengthening domestic demand and tighter product markets. Inflationary pressures are expected to dissipate by the middle of 2011, and annual average consumer price inflation is forecast to be only slightly above the central bank's target range this year. The BOK is therefore still likely to maintain an accommodative monetary stance. We expect it to keep interest rates on hold until it sees the impact of its latest rate rise later this year. The central bank will increase rates slowly during the next few years. Monetary policymaking will remain complicated by the fact that domestic rate rises act to strengthen the won in the international foreign-exchange market, something that the BOK is keen to avoid as the economy relies heavily on external demand for growth.