BOK raises base rate by 0.75% → 1.0%
“The base interest rate has reached 1%, but it is still at an accommodative level.”
Lee Joo-yeol, governor of the Bank of Korea, said this after raising the base rate from 0.75% to 1% on the 25th. Considering the unusually high inflation, increased household debt, and soaring asset prices, it implies that there is a need for more ‘tightening the money line’ following the preemptive ‘zero interest rate liquidation’.
In fact, as Governor Lee hinted at the possibility of an additional rate hike in the first quarter of next year (January to March), some observers say that the BOK may raise the base rate to 1.75% through two or three hikes next year.
○ ‘Inflation Fighter’ Han Eun-eun
The BOK raised the key interest rate by 0.5 percentage point for three months from August to today, which is interpreted as a sign that it will fulfill its role as an ‘inflation fighter’ to curb inflation. On the same day, the Bank of Korea predicted that this year’s consumer price inflation would rise 0.2 percentage point to 2.3 percent from August. Next year’s growth rate has been revised up from 1.5% to 2.0%. “I am concerned that the inflationary pressure, which started from the rise in international oil prices or raw material prices, is spreading to other sectors,” Lee said. Already, consumer prices rose 3.2% last month from a year ago, the highest rate of increase in nine years and nine months.
Unabated house prices and the accompanying rise in household debt are also cited as the reasons for the additional increase in three months. Household debt swelled to an all-time high of 1844.9 trillion won at the end of September, continuing an increase of more than 9% compared to the same period last year from the first quarter of this year. Governor Lee said, “If we do a survey of the general public, we still have to predict a rise in housing prices.”
The pace of rate hikes in the US is also accelerating the pace of rate hikes by the BOK. Kim Jin-il, a professor of economics at Korea University, said, “In recent days, the prospect that the US can start raising interest rates in the second quarter of next year (April to June) has increased. said This rate hike widened the base rate gap between Korea and the US by 0.75 percentage points.
○ “The base rate could rise to 1.75% next year”
State-run research institutes are raising concerns that the BOK’s rapid rate hike may limit the economic recovery. In response, Governor Lee said, “The current rate hike is normalization, not austerity. If it goes on for a long time, the side effects are too great.”
Rather, Governor Lee went a step further and suggested the possibility of further hikes. “If the growth trend is strong, inflation is high, and financial imbalances are still high, there is no need to rule out a rate hike in the first quarter,” he said. Early next year, the Monetary Policy Committee is scheduled for January 14 and February 24. Regarding the opinion of some that it would be difficult to raise further ahead of the presidential election in March next year, Governor Lee said, “It is not desirable to consider political considerations in monetary policy in conjunction with the political schedule or the governor’s term (end of March next year).” drew
Experts predict that the base rate will be raised one or two more times after the first quarter of next year. Kim Sang-bong, a professor of economics at Hansung University, said, “Despite COVID-19, Korea’s economic situation is at a better level than other countries. ” he looked forward.
It is also predicted that the real estate market will enter a breath-taking environment if a further increase in the base rate next year continues. Park Won-gap, senior expert at KB Kookmin Bank, said, “The increase in the base rate will lead to an increase in loan interest rates, which will cause a contraction in the real estate market. The key rate hike was not unanimous as Monetary Policy Committee member Joo Sang-young, who is classified as a ‘dove wave’, insisted on a rate freeze with a minority opinion.
By Park Hee-chang, staff reporter [email protected]
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