BOK in Dilemma over Rate Hike

  • By Kim Shin-young

    June 18, 2021 13:11

    The U.S. Federal Reserve's signal this week that it could raise interest rates sooner than expected has put pressure on the Bank of Korea to do the same.

    A foreign-exchange dealer watches financial news in a bank in Seoul on Thursday. /Yonhap

    BOK Governor Lee Ju-yeol last month hinted at a possible rate hike within this year, saying, "It's natural to readjust the unusually low interest rate that has been kept since the outbreak of coronavirus if the economic situation improves."

    Minutes of its monthly monetary meeting published Tuesday show members earnestly discussing the timing of a rate hike. Lee cited a faster-than-expected economic recovery and mounting household debt as the main reasons supporting it.

    As of the end of the first quarter this year, household debt soared to a record W176.5 quadrillion, up W153 trillion on-year due to increased borrowing to buy homes and stocks. "I believe we need to suppress this or pay an even bigger price later," Lee said earlier.

    If interest rates rise in the U.S. but not here, investors could exit the Korean market to park their money where more stable interest earnings are available. Interest rates in the U.S. range from zero to 0.25 percent at present, and one more rate hike by the Fed could raise the rate to equal Korea's 0.5 percent.

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