Bank of Korea Raises Key Interest Rate for First Time in 42 Months, Increasing Burden on Borrowers

[Anchor]

The Bank of Korea has raised the benchmark interest rate to 2.75%, marking the first increase in three and a half years. The market reacted immediately, with the exchange rate falling, as the central bank hinted at the possibility of further rate hikes. The interest burden is expected to grow for 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 is the first hike in three and a half years since January 2023.

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

With the consumer price index having surged 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, with the first-quarter gross domestic income growth rate exceeding 13% due to strong semiconductor exports, the central bank took into account that improved income could stimulate domestic demand and further drive up inflation.

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

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

[Interview] 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. It will likely be revised upward by a significant margin at the August monetary policy meeting...

The Bank of Korea stated that the decision was unanimous among the seven board members and that it is necessary to continue the trend of interest rate hikes in the future.

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 approaching 1,490 won, began to fall simultaneously with Governor Shin's press conference.

The won showed its greatest strength during this remark by Governor Shin, which hinted at additional interest rate hikes.

[Interview] 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 borrowed money to invest in stocks or those who have stretched their finances to the limit 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 per year, or 560,000 won per person annually.

Regarding concerns about 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.