BOK's monetary policy board member hints at additional rate hike this year

Another rate hike by South Korea’s central bank seems very likely this year as a member of the bank’s rate-setting board has reiterated its stance toward tightening, saying that the current policy interest rate is still accommodative despite

the country’s first rate hike in nearly three years in August.

"The current money policy is still loose even after a hike in the key rate in August,” Suh Young-kyung, a member of Bank of Korea’s six-member Monetary Policy Committee, said on Wednesday at a seminar organized by Korea Chamber of Commerce and Industry. "We will need to decide on the timing and pace of further rate hikes after taking macroeconomic and financial circumstances into consideration.”

In August, the BOK raised its base interest rate by 25 basis points to 0.75 percent from the historic low of 0.50 percent. It was the first rake hike by the BOK since November 2018, showing its willingness to contain inflationary gains and financial imbalance.

Market analysts expect an additional rate hike during the next monetary policy meeting in October or November when this year’s last rate-setting meeting will be held.

Suh Young-kyung

Suh’s hint at another rate increase this year comes after BOK Governor Lee Ju-yeol said in August that the latest rate hike decision was the first step towards the need to resolve accumulated financial imbalance in the country.

Financial imbalance refers to excessive household debt against stagnated income and over-concentration of debt-financed capital investment in assets like housing and securities through cheap liquidity, according to the bank.

Suh suggested the BOK considers factoring in rising housing costs into the consumer price index after the country’s housing prices have been rising during the Covid-19 pandemic.

She, however, admitted that it is not easy to take preemptive monetary actions amid lingering economic uncertainties at a time when the Korean economy has been beset with downside risks such as flagging consumption, increasing export uncertainty and incomplete recovery of employment.

Still, it is important to proactively come up with measures to deal with potential structural changes in the post-Covid era as the pandemic impact coupled with disruptive technology advances and demographic shifts is accelerating changes in the existing economic structure, Suh said, citing the constant presence of uncertainty, the accumulation of financial imbalance, and the expansion of economic imbalance as the three monetary policy challenges in the post-Covid era.

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