The Bank of Korea's second interest- rate increase this year leaves its benchmark below the pace of inflation, a sign the central bank will need to add to its move in coming months or risk eroding households' savings.

Governor Kim Choong Soo raised borrowing costs by 0.25 percentage point to 2.5 percent yesterday. The benchmark is 1.6 percentage point below October's annual pace of inflation, and has remained under the gains in consumer prices for 12 straight months, the longest stretch since the base rate's introduction in 1999, according to data compiled by Bloomberg.

"The BOK has realized finally that it is dangerously behind the curve in terms of monetary policy," said Erik Lueth, a Hong Kong-based senior economist at Royal Bank of Scotland Group Plc, who previously worked at the International Monetary Fund.

Negative real interest rates, when the benchmark is less than the pace of inflation, skew incentives toward spending rather than saving, elevating pressure on consumer prices. With the central bank likely to raise rates again as soon as next quarter, the nation's currency is poised to climb, according to Goldman Sachs Group Inc.

Eoin Treacy's view The continued recovery in the global economy is highlighting disparity in performance between high growth regions in Asia and Latin America versus comparatively sluggish growth in the USA, Europe and Japan. A one size fits all approach to monetary policy is not suitable to such conditions. Record low interests are simply not appropriate for high growth regions where inflationary pressures are increasingly evident. A number of countries have begun to normalize policy this year, however the pace of advances has been slow primarily due to the upward pressure such a widening of interest rate differentials has on the respective currencies.

Commodity led inflationary pressures have once again moved centre stage and while most are now pulling back from their recent highs, the medium-term trend remains skewed towards higher prices. This suggests that Asian and Latin American economies will have little choice but to continue to raise interest rates, making further attempts at capital controls more likely. Brazil has, so far, been the most high profile country to state it will limit the advance of its currency but more countries are now also taking substantive action. The corollary is that a disorderly US Dollar decline is becoming increasingly unlikely.

The Asian Dollar Index encountered resistance in the region of its 2008 peak from late October and continues to pause below 116. However, a sustained move below the 200-day MA, currently near 112.7 would be required to question medium-term upside potential.

The Latin American Dollar Index continues to consolidate mostly above yearlong range and a sustained move below the 200-day MA, currently near 111 would be required to question medium-term recovery potential.

The Dollar Index found support above 75 from late October in a third incrementally higher reaction low since the 2008 nadir. A sustained move below that level would be required to limit scope for continued higher to lateral ranging.