The Bank of Korea raised the key interest rate by 0.25 percentage points for the first time in three months. Despite the governor’s vacancy, the recent soaring price situation seems to have accelerated the decision.
The Monetary Policy Committee of the Bank of Korea held a monetary policy direction meeting on the 14th and raised the base rate by 0.25 percentage points from the current 1.25% per annum to 1.50%. At the meeting that was held in the unprecedented absence of the governor, the six monetary policy members unanimously decided to raise the rate. As a result, the base interest rate, which had been frozen 9 times in 15 months, while lowering to 0.50% (after May 28, 2020) during the COVID-19 crisis, rose a total of 1.00 percentage points from August last year on four occasions.
The recent sharp rise in inflation is considered to be the biggest factor in this rate hike. Due to the sharp rise in international oil prices after the Ukraine crisis, the consumer price index recorded 4.1% last month, exceeding 4% for the first time in 10 years and 3 months. In a resolution to the monetary policy direction, the Monetary Policy Committee said, “Inflation has accelerated while the recovery of the global economy has slowed somewhat due to the impact of the Ukraine crisis.”
The MPC predicted that this price situation would continue for the time being. The Monetary Policy Committee said, “Consumer price inflation is expected to continue to rise in the 4% range for the time being, and the rate of increase is also expected to greatly exceed the February estimate (3.1%) this year. ” he predicted.
“The Monetary Policy Committee will operate monetary policy with attention to financial stability while ensuring that the recovery of growth continues and the inflation rate can be stabilized at the target level in the medium term,” the Monetary Policy Committee said. “As the recovery trend continues and inflation is expected to remain above the target level for a considerable period of time, we will adjust the degree of monetary policy easing accordingly,” he said.
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