S. Korea raises interest rate amid accelerating inflation

Kyodo News

Posted at Nov 25 2021 02:50 PM

SEOUL - South Korea's central bank raised its key interest rate to 1 percent on Thursday to curb accelerating inflation, bringing an end to an era of rates in the zero range.

The decision to lift the benchmark rate by 0.25 percentage point, the second hike in three months, came as inflation continues and household debts surge.

The members of the Bank of Korea's monetary policy board voted to raise the interest rate from 0.75 percent to 1 percent. In May 2020, the central bank cut the rate to a record low of 0.5 percent to tackle the economic fallout caused by the coronavirus pandemic but lifted it by 0.25 percentage point to 0.75 percent in August this year.

The central bank on Thursday unveiled the decision as it voiced concerns over inflationary pressure in the wake of the global economy's recovery as vaccinations progress.

"The board will continue to conduct monetary policy in order to sustain the recovery of economic growth and stabilize consumer price inflation at the target level" over the medium term, the bank said in a statement.

South Korea's consumer price index rose 3.2 percent in October from a year earlier, the fastest on-year gain since January 2012, a report by Yonhap News Agency said, citing government data.

The low interest rates since May last year had made funding easier, causing the real estate market to overheat and housing prices to soar, increasing household debt.

The central bank, meanwhile, maintained its growth outlook for the South Korean economy this year at 4 percent and at 3 percent for 2022, unchanged from its forecasts in August, as it stressed the economy's sound recovery.

"Although facilities investment has somewhat slowed due to global supply constraints, exports have sustained their buoyancy and private consumption has shown rapid improvement supported by accelerated vaccinations and the easing of domestic COVID-19 restrictions," the central bank said.

Market watchers said the bank may raise the interest rate at least once in the first half of next year, according to the Yonhap report.