November 26, 2021 11:31
The Bank of Korea on Thursday raised the key interest rate by a quarter percentage point as expected to one percent citing inflation concerns.
The central bank warned of "consumer prices surpassing targets for a considerable period of time" amid robust economic growth despite lingering uncertainties posed by the coronavirus pandemic.
Another goal is to curb skyrocketing household debt, which soared to a record W1.85 quadrillion. But higher interest will raise the burden on people in debt -- according to the BOK, 75 percent of household debt was taken out with floating interest rates.
The stock market could also suffer from soured investor sentiment since many retail investors borrowed money from banks for a flutter on the stock exchange.
"We no longer have a justification to maintain the low interest rate that was reduced unprecedentedly due to the pandemic," BOK Governor Lee Ju-yeol told reporters. He also hinted at a further rate hike by adding that, even though the key rate was raised to one percent, it is "still accommodating considering growth and consumer price trends."
One more quarter-percentage-point hike will raise the key rate to the pre-pandemic level of 1.25 percent.
The U.S. still maintains the base rate at the pandemic level of 0.25 percent, but there are forecasts that the Federal Reserve could raise it before June of next year.
According to the minutes of the Federal Open Market Committee meeting on Wednesday, participants cited a need to "raise the target range for the federal funds rate sooner" than expected if consumer prices rise quickly and that the Fed should "not hesitate" to make the move.
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