The move follows a 50 basis point increase last month. BOK governor Rhee Chang-yong had initially signalled a bigger move but later hinted at a slowdown citing unfavourable market conditions.

The decision comes amid growing signs of stress in the corporate bond market sparked by a provincial government’s proposal not to repay its debt in September. The province later promised to pay back the debt, but it was too late to calm jitters as yields for corporate bonds have since jumped sharply.

The three-year credit spread between corporate bonds rated AA- and Korean treasury bonds rose to its highest level since the 2008 global financial crisis, showing that the corporate sector is struggling to obtain funding.

Analysts said that the BOK’s tight monetary policy, along with slower Chinese growth and global inflationary pressures, are weighing on Asia’s fourth-largest economy.

“In Korea, we expect prevailing drivers – such as slower Chinese growth, global inflationary pressures and tighter monetary policies, on top of a shifting supply-chain landscape and a maturing tech cycle – to dampen the external outlook,” said Moody’s Investors Service in a report earlier this month.

Moody’s expected the South Korean economy will grow 2.5% this year, followed by 2.0% in 2023, as interest-rate tightening weighs on domestic demand even as export growth slows further on weak global demand.

Nomura says that the BOK may terminate its hiking cycle earlier than expected to stabilise the market. “We expect growing financial stability concerns to end the BOK’s hiking cycle earlier than markets expect,” said Nomura economist Park Jeong-woo in a note two weeks ago.