Analysts Expect No Drastic Interest Hike Next Month

Analysts expect no further drastic interest rate hikes here in the near future, predicting that the Bank of Korea will only raise the base rate by another quarter-percentage point next month.

The BOK last month alarmed debtors by raising the key rate by an unprecedented 0.5 percentage point, anticipating even bigger hikes by the U.S. Federal Reserve.

It only has three more chances left before the end of this year to increase its interest rates, the next in early August.

Morgan Stanley and Goldman Sachs expect the BOK to increase the key rate by a quarter percentage point every time until the end of the year because it cannot risk drastic measures to rein in inflation while the economy faces a slump.

The chief concern is the mounting interest burden for debtors. The Korea Economic Research Institute said in a report on Thursday that the maximum U.S. interest rate will be 3.12 percent, so the BOK may have to raise the key rate to 3.65 percent to stay ahead. But if that happens, each indebted household will see annual interest payments increase by W2.92 million (US$1=W1,296).

Korea's current key rate is 2.25 percent. If it increases 1.4 percentage points, household loan interest rates will rise by 1.65 percentage points, resulting in interest payments rising by W34.1 trillion a year.