Bank of Korea raises benchmark interest rate to 0.75%; first hike in 2 years 9 months

한국은행, 기준금리 연 0.75%로 인상

Seoul's central bank has become the first among developed countries to raise interest rates in the pandemic.
The BOK will be closely monitor what this does to the household debt situation.
Min Suk-hyen helps us look beyond the digits.
The Bank of Korea has raised its benchmark interest rate to point-seven-five percent from the previous record low of point-five percent.
The decision was made during the central bank's monetary policy meeting on Thursday morning.
It's the first rate hike since November 2018.
The central bank had made several slashes to its key interest rate since then... and during the coronavirus outbreak, it cut the rate to point-seven-five percent in March last year and once more to point-five percent in May last year.
The BOK explained that the decision was made after taking into account several factors.

"Despite the ongoing COVID-19 pandemic, a solid economic recovery is expected to continue following vaccine rollouts and robost exports. Also, because inflationary pressure is projected to remain high and financial imbalances continue under the eased monetary policy... we have decided to raise the key interest rate by 25 basis points. The BOK will gradually make adjustments to the rate in line with the country's economic recovery."

Experts say that further adjustment could be made this year during the next two rate-setting meetings, slated for October and November.

"While it's not easy to forecast when exactly a rate adjustment will be made again, it is likely that the central bank will closely watch how the growing household debt and inflationary pressure are affected by Thursday's rate hike."

With the rate hike, the central bank aims to curb growing household debt and soaring property prices.
In the second quarter of this year, South Korea's total household debt rose above 1-point-5 trillion U.S. dollars, setting a new record high over increasing borrowing to cope with rising house prices and the economic fallouts from COVID-19.

The central bank also kept South Korea's economic outlook for this year unchanged.
It projected a four percent growth in GDP for 2021, the same as the previous forecast made in May.
This comes as exports and facility investment remained strong... along with improving employment figures.

On consumer price inflation for this year, the central bank expected it to be 2-point-1 percent, up from an earlier forecast of 1-point-8 percent.
This is largely due to rising prices of petroleum products and agricultural, livestock, and fisheries goods...as well as increasing service prices.
Min Suk-hyen, Arirang News.

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2021-08-26, 22:00 (KST)

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