On the 25th, the Monetary Policy Committee of the Bank of Korea raised the base rate by another 0.25 percentage point from 0.75% to 1.0%. This is the second rate hike this year following the 0.25 percentage point increase in August. It is the first time in one year and nine months since March last year when the BOK lowered the base rate by 0.5 percentage points to 0.75% in response to the COVID-19 pandemic. Bank of Korea Governor Lee Ju-yeol even hinted at the possibility of an additional rate hike in the first quarter of next year.
The rate hike was expected enough, as 90% of market experts predicted. During the first hike in August, Governor Lee predicted an additional increase within the year, saying, “The first step was taken because of the need to alleviate the accumulated financial imbalance.” In fact, the BOK’s agile policy shift was driven by the policy goal of easing financial imbalances, in addition to responding to inflation, which had far exceeded the 2% target. This means that it is the foundation for managing the rise in asset prices due to low interest rates, such as a surge in household debt and a surge in real estate prices.
The increase in household debt has moderated somewhat thanks to the August interest rate hike and tightening lending regulations. However, the increase itself continued, and the accumulated amount in the third quarter reached an all-time high of 184.4 trillion won again. Regarding domestic household debt, the International Finance Association (IIF) said on the 15th that, as a result of a survey of 37 countries, Korea was the only country with a higher household debt than the gross domestic product (GDP) at 104.2%. warned
The BOK and the government expect this measure to be effective in catching the rise in real estate prices. It is analyzed that the August interest rate hike and strengthened loan regulations had an effect on the recent slowdown in house price growth. However, there are widespread consumer complaints that banks, etc. are taking advantage of the increase in the market interest rate by raising the loan interest rate higher than the market interest rate by taking advantage of the base rate hike and loan regulation policy. There is a great need to reinforce measures to adjust the actual loan interest rate that consumers will be satisfied with, rather than simplistic measures such as strengthening the right to demand a rate cut or raising interest rates for deposits and savings accounts.
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