Home Interest rate South Korea raises interest rates to record high as debt worries rise

South Korea raises interest rates to record high as debt worries rise

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Most of the central banks that have raised rates this year are among emerging economies concerned about capital flight and imported inflation. In Asia, Sri Lanka hiked rates last week, becoming the first in the region to do so.

Analysts say South Korea needs to be ahead of the game as soaring household debt and house prices threaten financial stability.

“The BoK’s concerns about financial imbalances may outweigh the downside risk to economic growth of the delta variant,” Citibank analyst Kim Jin-wook said in a report ahead of the decision.

“We are now advancing the timing of our second 1% increase call, to November 2021 from January 2022.”

On Thursday, the BoK kept its outlook for economic growth at 4% for this year, but raised its consumer inflation forecast to 2.1% from 1.8% previously, signaling that conditions are strengthening for a tightening politics.

Analysts expect the BoK to raise interest rates next year, with most seeing the base rate at 1.25% by the end of 2022.

The policy decision is the first rate review the BoK has had as a six-member body after board member Koh Seung-beom left as head of the Services Commission regulator financial.

Two more interest rate review meetings are scheduled for this year.

Reuters


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