Bank of Korea Monetary Policy Board Raises Base Interest Rate by 0.25%: End of the Sub 1% Base Rate

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Lee Ju-yeol, the governor at the Bank of Korea, presides over a meeting of the Monetary Policy Board at the central bank building in Jung-gu, Seoul on the morning of November 25. Courtesy of the Bank of Korea

The Bank of Korea Monetary Policy Board raised the base interest rate by 0.25%. This ends the sub 1% interest rate, which lasted for twenty months.

On November 25, the Monetary Policy Board held a meeting at the Bank of Korea in Jung-gu, Seoul and decided to raise the base rate by 0.25%, from an annual 0.75% to 1.0%. The decision was made three months after the Board raised the interest rate by 0.25% in August, after announcing its determination to normalize the monetary policy following the COVID-19 outbreak. The Board had lowered the interest rate by 0.5% and 0.25% in March and May 2020 respectively when the economy quickly froze with the spread of COVID-19. The Board maintained the lowered rate until it raised it for the first time in fifteen months in August.

It seems the Board decided to raise the interest rate after considering that the nation’s monetary policy was still loose and that there was a higher need to respond to the inflation as household debt continued to rise and the rise in consumer prices exceeded forecasts. The decision to raise the base rate may also reflect an assessment of the economic recovery, that the economy is making a strong rebound, strong enough to begin slowly collecting the money.

The higher interest rate this day widened the gap between South Korea’s base rate and the rate of the U.S. Federal Reserve (0.00-0.25%) to 0.75-1.00%.