South Korea's central bank on Wednesday hiked its key interest rate by half a percentage point to a decade high as it tries to tackle surging inflation and support the plunging won.

The Bank of Korea (BOK) lifted borrowing costs to 3 percent – the highest since 2012 – marking the latest in a series of increases since last year, when they were at rock bottom to fight the impact of the pandemic.

"Additional inflationary pressures and the risks to the foreign exchange sector have increased, affected by the rising South Korean won to U.S. dollar exchange rate, while inflation has remained high," the central bank said in a press release.

The latest decision comes as Asia's fourth-largest economy recovers from a COVID-19-induced slowdown with a rebound in demand – although it is now struggling with rising fuel and raw material prices.

It is the bank's fifth consecutive hike, and a return to a faster pace of tightening, after a quarter-point raise in August, highlighting efforts to support the won, which is at a 13-year low.

The won depreciation is making inflation worse in South Korea, which is heavily reliant on energy imports.

The country's consumer prices jumped 5.6 percent year on year in September, fueled by accelerating costs for personal services and processed food products.

The central bank said domestic economic growth is expected to slow gradually, affected by the global slowdown and the increase in interest rates.

"The Board sees continued rate hikes as warranted, as inflation is expected to remain high," it added.

In step with the U.S. Federal Reserve, central banks around the world have launched a series of rate increases as the Russia-Ukraine conflict has led to a surge in energy and food prices.

On October 3, the Bank of Israel raised interest rates by 0.75 percentage point for the second meeting in a row. Before that, on September 20, Sweden's central bank also raised interest rates by 1 percentage point.

The U.S. central bank has already increased its interest rates five times in 2022, including three consecutive major rate hikes of 75 basis points in June, July and September. Markets currently expect the Fed to raise rates just one more time in November for the year.

On Thursday, the International Monetary Fund cut its 2023 global growth forecast to 2.7 percent and trimmed its outlook for South Korea next year to 2 percent from 2.1 percent.

(With input from AFP)