BOK RAISES KEY INTEREST RATE

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The Bank of Korea has raised its key interest rate by a quarter percentage point to a pre-pandemic level. Inflation and household loan concerns are believed to have been a factor.

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The nation's central bank raised the benchmark interest rate from 1 to 1.25%. The hike comes two months after a quarter percentage point increase was carried out in November. A rate hike twice in a row like this, is a first since 2007. As a result, the key rate has returned to a level seen prior to February 2020 before the pandemic struck. The BOK believes economic recovery is firmly under way while consumer prices including those of raw materials continue to rise. Increases in household loans and asset prices are also believed to have affected the decision. The central bank's monetary policy board said solid economic growth is expected to continue while inflation is likely to exceed target levels for a considerable period of time. Regarding inflation, the bank said costs of oil products as well as agro-livestock and fishery goods continue to rise and consumer price growth is expected to remain in the 3% range for the time being. Regarding more possible rate hikes, the bank said it will adequately adjust the degree of monetary easing based on factors such as inflation and the pandemic situation. The BOK predicts if lending rates also went up by a quarter percentage point, household burden on interest payments will increase by 3.2 trillion won. In this case, interest burden per person will go up from 2.9 million won to 3.06 million each year. The benchmark rate was slashed half a percentage point in March 2020 to boost the pandemic-hit economy. It was further lowered by a quarter percentage point two months later in May.