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SEOUL, Sept. 9 (Reuters) – South Korea’s central bank said on Thursday that raising its key rate should help slow the pace of household debt growth in the future, and reaffirmed that it would continue to rise. tighten policy as inflationary pressures persist.
The Bank of Korea raised its policy rate by 25 basis points to 0.75% in August, rising for the first time in nearly three years to become the first major Asian central bank to move away from monetary stimulus measures by the pandemic era. Read more
The central bank said in a monetary policy report that a 25 basis point rate hike should help reduce household debt growth by 0.4 percentage point in the first 12 months, signaling that the conditions are preparing for a new political tightening.
The BOK said it would gradually adjust its monetary policy in the future as “inflation is expected (to) accelerate above 2% for now”.
Consumer prices in South Korea rose 2.6% in August from a year earlier, according to recent data, above the central bank’s official inflation target of 2%. Read more
Rate cuts worth 75 basis points since last year and ample fiscal stimulus have helped fuel South Korea’s strong recovery from the COVID-19 pandemic, putting the BOK at the vanguard of global stimulus withdrawal.
With the economy now on relatively healthy footing, policymakers have signaled in recent weeks the possibility of further rate hikes amid a debt frenzy in the country. In the June quarter, bank lending to households saw the largest annual increase since the central bank began releasing relevant data in 2003. read more
Analysts expect the BOK to raise interest rates further this year and next, according to a Reuters poll in late August, with most seeing the base rate at 1.25% by the end from 2022. read more
Reporting by Cynthia Kim; Editing by Ana Nicolaci da Costa
Our Standards: Thomson Reuters Trust Principles.
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