Eyes on the Monetary Policy Committee with Dissenting Opinions... Will There Be an Interest Rate Hike?

Minority Opinion for 'Interest Rate Hike' Emerges at Monetary Policy Direction Meeting
Concerns Over Financial Imbalance and Asset Price Surge

[Asia Economy Reporter Jang Sehee] A dissenting opinion emerged at the Monetary Policy Committee of the Bank of Korea, which decides the base interest rate. With the dissenting opinion, discussions on raising the interest rate at the Bank of Korea are expected to accelerate.

The Bank of Korea's Monetary Policy Committee held a meeting on monetary policy direction at the Bank of Korea headquarters in Seoul on the 15th and decided to maintain the base interest rate at the current level of 0.5%.

Although the domestic economy is showing signs of recovery supported by strong exports, leading to increased inflationary pressure, it was judged necessary to observe the overall economic impact of the resurgence of COVID-19.

However, a dissenting opinion was voiced at the Monetary Policy Committee meeting that day. Bank of Korea Governor Lee Ju-yeol stated, "Governor Ko Seung-beom expressed an opinion to raise the rate by 0.25 percentage points, so the decision was not unanimous to keep it unchanged."

This contrasts with the unanimous decisions to keep the base interest rate unchanged over eight meetings since July last year.

Although economic uncertainty due to COVID-19 has increased, financial imbalances and soaring asset prices are expected to act as factors for raising interest rates. Governor Lee is also concerned about the correlation between asset prices and debt.

Governor Lee evaluated, "In the Seoul metropolitan area, including Seoul, the ratio of housing prices to income is considerably higher than in other countries." He added, "Price increases are closely related to debt growth," and "The level of asset investment through borrowing is significantly higher compared to other countries."

Considering that Governor Lee mentioned the need to start discussions on the degree of monetary policy easing from the August meeting, the first interest rate hike is highly likely to be implemented at the October meeting. In particular, he is also considering that the later the rate hike is delayed, the greater the cost may be.

Experts also advise that an interest rate hike is necessary given the rapidly increasing household debt and inflation trends. Professor Jeon Seong-in of the Department of Economics at Hongik University analyzed, "Regulations such as Loan-to-Value (LTV) and Debt Service Ratio (DSR) are quantity control methods, but price control methods are more effective in curbing debt."

This content was produced with the assistance of AI translation services.