After a session of the Monetary Policy Committee on Thursday, the BOK said it will raise its benchmark rate from 5 percent to 5.25 percent per year. Explaining its monetary policy direction, the committee said, "The BOK hiked the benchmark rate to curb inflation expectations."

"Consumer prices jumped 5.9 percent in July year on year,” continued BOK Governor Lee Seong-tae. “It is possible that inflation will soar in August -- and September, too. We'll implement the momentary policy by taking this situation into consideration."

Financial circles interpreted Lee's remarks as suggesting that the "central bank will likely raise the benchmark rate further, unless consumer prices stabilize."

When news of the key rate hike became known, commercial banks said they would raise time deposit rates by 0.1 to 0.5 percentage points. The interest rate of a 91-day transferable certificate of deposit -- the base rate for adjustable interest rates of commercial bank loans -- also rose by 0.02 percent, reflecting forecasts that the benchmark interest rate hike will also keep market interest rates high.

As a result, low to middle-income earners in urban areas will be under increased pressure to repay outstanding bank loans. From the end of July, household loans, including home equity loans, totaled W379 trillion (US$1=W1,017). If the loan interest rate rises by 0.25 percent alongside the benchmark rate hike, loan borrowers will have to pay W948 billion more in annual interest.

(englishnews@chosun.com )