SEOUL – South Korea’s central bank has raised their interest rates today, one of the first major economies to do so since borrowing costs were cut to record lows in the wake of the Covid-19 pandemic.
The Bank of Korea (BOK) raised its key rate by 25 basis points to 0.75% after a policy meeting as the country tries to rein in growing household debt and a frenzied housing market.
A few countries have begun to raise interest rates – Brazil, Russia, Chile and Mexico – and investors around the world are watching closely for when the United States Federal Reserve will start to taper its huge stimulus programmes.
South Korea, the world’s 12th largest economy, has kept its key rate at a record low of 0.5% since May last year.
The move was the first-rate rise since November 2018 and came as financial authorities grapple with surging household debt and an overheated housing market, which analysts warn can threaten economic stability.
South Korea’s household debt rose 41.2 trillion won (RM1.4 trillion) during the April to June period to a record high of 1,806 trillion won, roughly equivalent to the country’s GDP.
“Household loan growth has accelerated and housing prices have continued to increase rapidly in all parts of the country,” BOK said in a statement.
The country has continued “sound recovery”, it added, saying “exports have sustained their buoyancy and facilities investment has shown a robust trend”.
The central bank maintained its growth outlook at 4% for this year but raised its consumer inflation forecast to 2.1% from 1.8%, signalling a possible policy tightening.
The rate hike comes as South Korea sees its highest infection rates of the pandemic, albeit low by global standards, at around 1,000 to 2,000 cases a day.
The country had previously been held up as a model of how to combat the pandemic, with the public largely following social distancing and other rules, but it was slow to start its vaccine roll-out due to supply shortages. – AFP, August 26, 2021
