‘Zero interest rate’ period… BOK likely to raise key interest rate to 1%

▲ Lee Ju-yeol, President of the Bank of Korea ⓒBank of Korea

The Monetary Policy Committee of the Bank of Korea is expected to raise the base rate on the 25th. This is attributable to growing concerns about inflation as household debt reached an all-time high of 1845 trillion won and consumer price inflation exceeded 3%.

If the MPC raises the base rate by 0.25%p, the base rate will rise to 1.00%, ending the era of zero interest rates.

According to the Financial Investment Association on the 24th, 90 out of 100 bond experts predicted that the MPC would raise the base rate. Considering the skyrocketing inflation and explosively increasing household debt, the possibility of a rate hike is higher than ever.

The consumer price index rose 3.2% in October compared to the same month last year, the highest level in nine years and nine months since January 2012.

Household debt is also at an all-time high. As of the third quarter, household debt stood at 1844.9 trillion won, up 36.7 trillion won from the previous quarter. Although the government mobilized the household loan total amount system to curb loans, the increase in household debt continued.

In particular, among household debt, mortgage loans stood at 969 trillion won as of the end of September, up 20.8 trillion won from the end of June. In terms of quarterly increase, it is the highest level since the fourth quarter of 2016 (24.2 trillion won). It is interpreted that the size of the subsidy increased as demand for sale continued in the third quarter amid the surge in real estate.

If the Bank of Korea, which raised the base rate in August, raises the base rate in November, consumers’ interest burden is also expected to rise sharply. According to Korea Investment & Securities, household interest expenses next year are expected to reach a total of 66 trillion won. This is the largest since 2018 when related counting began.

Ahn Ye-ha, a researcher at Kiwoom Securities, said, “The Monetary Policy Committee will continue to confirm its will to normalize monetary policy by raising the key interest rate in consideration of the recently increased price level and the increase in household debt burden.”

There are also speculations that at the same time as the base rate hike, the next MPC meeting will be held in January next year to signal a rate hike.

Researcher Ahn said, “The Bank of Korea Governor Joo-yeol Lee changed the phrase ‘gradually’ while saying that he would adjust the degree of easing of monetary policy ‘appropriately’ at the previous Monetary Policy Committee. “This press conference will also deliver a hawkish message by foretelling additional interest rate hikes.”

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