"Bank of Korea Likely to Raise Interest Rates in August... Focus on Real Estate and Inflation Control"

Bank of Korea Monetary Policy Committee Decision on the 26th

(From left) Sungwook Park, Director of Macroeconomic Research at Korea Institute of Finance (Senior Research Fellow), Jonghoon Park, Chief Economist at SC First Bank, Donghyun Ahn, Professor of Economics at Seoul National University

BOK Signals Multiple Rate Hikes

Despite COVID-19, Priority Seen as Controlling Real Estate and Inflation

Governor Go Seung-beom Nominated as Financial Services Commission Chairman

Shows Government and Blue House’s Stance on Controlling Real Estate Market

However, COVID-19 Impact on Self-Employed Considered

Considering Impact, Some Opinions Favor Postponing Rate Hike Beyond August to October

[Asia Economy Reporter Kim Eun-byeol] Despite the prolonged 4th wave of COVID-19, the Bank of Korea (BOK) is highly likely to raise the base interest rate at this month’s Monetary Policy Committee meeting. This is because the impact of COVID-19 on the real economy has been less severe than expected, and there is a strong perception that curbing the rise in real estate prices and inflation should take priority.

On the 10th, Asia Economy gathered opinions from macroeconomic experts, most of whom agreed that the BOK is likely to raise the base interest rate at the Monetary Policy Committee meeting scheduled for the 26th.

Park Sung-wook, Head of the Macroeconomic Research Division at the Korea Institute of Finance (Senior Research Fellow), said, "I believe there is a considerable possibility of a rate hike this month," adding, "Although there are some negative effects from COVID-19, economic indicators are not very bad." He judged that since the BOK has repeatedly expressed concerns about the rapid rise in asset prices such as real estate and financial imbalances caused by borrowing for investment, it has no choice but to raise interest rates.

Park added, "If the rate hike is postponed after signaling multiple times, it could rather encourage borrowing before the rate increase." He forecasted that if the BOK raises rates in August, it could raise them once more in November. The consumer price inflation rate, which has been in the 2% range for four consecutive months since April, also supports the possibility of a rate hike. He said, "Although the price increase is due to supply shocks, since it has exceeded 2.0%, there is a basis for raising interest rates."

Park Jong-hoon, Chief Economist at SC First Bank, said, "The possibility of a rate hike is close to 100%," citing steady consumption despite the 4th wave, rapid inflation, and household debt and financial imbalance issues. He explained, "Online consumption remains robust, and the negative economic effects of COVID-19 do not seem to be at a worrying level," adding, "The second-quarter GDP recovered faster than the BOK’s forecast path, and the supplementary budget effect will be added in the second half of the year." He emphasized, "Inflation seems to be moving quite fast. Typically, the inflation rate in August tends to be higher than in July compared to the previous month. If this continues, the consumer price inflation rate will exceed 2% for 5 to 6 consecutive months, so the BOK is bound to show a hawkish (monetary tightening preference) stance."

The strong determination of the Blue House, government, and BOK to control the real estate market was also cited as a reason for a possible rate hike. Regarding the recent nomination of the hawkish Go Seung-beom, BOK Monetary Policy Committee member, as Financial Services Commission chairman, Park interpreted it as "showing the will to curb the rapid rise in the real estate market caused by excessive household borrowing." Go was the only member to submit a minority opinion in favor of a rate hike at last month’s Monetary Policy Committee meeting.

However, considering that daily confirmed cases have exceeded 1,500 and the shock to self-employed individuals and social atmosphere, some opinions suggest focusing on assessing the economic situation this month. Professor Ahn Dong-hyun of Seoul National University’s Department of Economics said, "Since self-employed individuals are suffering significant damage, it is better to observe the economic situation and raise rates in October." He advised that when raising rates, measures to ease the burden on vulnerable groups and existing household and corporate loans should also be considered. He explained that for corporate loans, most of which have variable interest rates, financial authorities should encourage product diversification to reduce loan burdens.

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