The Bank of Korea's Monetary Policy Board raised the benchmark interest rate Thursday from 2.5 percent to 2.75 percent, saying it sees a need to continue on a rate-hiking path going forward.
In its monetary policy statement, the board said it would "determine the timing and pace of additional hikes while monitoring the degree of inflationary pressure, the trajectory of economic improvement, and financial stability conditions."
All seven board members voted in favor of raising the benchmark rate by 0.25 percentage point, from 2.0 percent to 2.75 percent annually.
On the domestic economy, the board said growth had accelerated as exports and investment — led by the semiconductor sector — continued to expand at a strong pace, while consumer spending also held up well. It projected that this year's growth rate would "significantly exceed" the 2.6 percent forecast issued in May, with a revised outlook to be released in August.
On prices, the board said inflation would remain elevated for a considerable period, as the effects of higher costs accumulated over time and exchange rate movements continued to feed through, while demand-side pressure from improving incomes gradually builds — even as global oil prices have fallen. It added that consumer price inflation this year would broadly align with the May forecast of 2.7 percent, but that core inflation would come in somewhat above the previous projection of 2.4 percent.
On foreign exchange and financial markets, the board said the won-dollar exchange rate had climbed to the mid-1,500 won range amid foreign equity outflows and a stronger US dollar, before falling back to the high-1,400 won range as foreign exchange supply and demand improved. It noted that household lending had risen sharply, driven by increases in both housing-related loans and other loans, and that the pace of housing price gains in the Greater Seoul area had widened. The board added that it must remain vigilant about high exchange rate volatility, rising housing prices in the Greater Seoul area, and accelerating growth in household debt.
kimstar@heraldcorp.com
