Bank of Korea Raises Key Interest Rate for First Time in 47 Months, Increasing Debt Burden

[Anchor]

The Bank of Korea has raised the base interest rate to 2.75%, marking the first increase in three and a half years. The central bank also hinted at the possibility of further rate hikes. This is expected to increase the interest burden on those who have taken out loans to invest in stocks or real estate.

Reporter Min Gyeongho has the story.

[Reporter]

The Bank of Korea's Monetary Policy Board has decided to raise the base interest rate by 0.25 percentage points to 2.75%.

This decision ends a streak of eight consecutive freezes and marks the first hike in three and a half years since January 2023.

The shift toward monetary tightening is primarily driven by concerns over inflation.

With the consumer price index soaring to 3.2% last month, the impact of high oil prices due to the war in the Middle East is expected to persist for more than a year.

Additionally, the board considered that strong semiconductor exports have pushed the first-quarter gross domestic income growth rate above 13%, and that such income improvements could stimulate domestic demand and further drive up inflation.

The continued growth of household debt and the persistently high exchange rate also served as justifications for the rate hike.

As economic growth indicators are expected to improve significantly, the burden of raising interest rates has been reduced.

[Shin Hyun-song / Governor of the Bank of Korea: All components of GDP are showing significant strength. (The existing growth forecast for this year of) 2.6% is too low. At the August monetary policy meeting, it will likely be adjusted upward by a considerable margin.]

The Bank of Korea stated that the decision was unanimous among the seven members of the Monetary Policy Board and that it is necessary to continue the trend of interest rate hikes moving forward.

The market is raising the possibility of additional hikes within the year, such as in August or October.

The foreign exchange market reacted immediately to the expectation that the interest rate gap with the United States, which has narrowed to 1 percentage point, could shrink further.

The won-dollar exchange rate, which was nearing 1,490 won, began to fall simultaneously with Governor Shin's press conference.

The won showed its strongest performance during the remarks where Governor Shin signaled additional interest rate hikes.

[Shin Hyun-song / Governor of the Bank of Korea: The upcoming meetings (of the Monetary Policy Board) will be... what we call live meetings. We are keeping all possibilities open.]

However, the burden on those who have taken out loans to invest in stocks or those who have exhausted their financial resources to buy real estate will inevitably increase along with the higher interest rates.

The interest burden for self-employed individuals is also expected to increase by 1.8 trillion won annually, or 560,000 won per person per year.

Regarding concerns over the impact of rate hikes on vulnerable groups, Governor Shin said it would be appropriate to supplement the situation with fiscal or financial policies that can produce selective policy effects.

(Video Editing: Kim Jun-hee)
※ Please note: This article was translated by AI and may contain errors.