[Interest Rate Hike] Lee Ju-yeol "Base Rate 1.50%, Not Tightening"... Suggests Additional Rate Increase (Comprehensive Report 3)

14th Bank of Korea Monetary Policy Committee Press Conference
Experts Say "Likely to Rise to 1.75% by the End of This Year"

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] Lee Ju-yeol, Governor of the Bank of Korea, indicated additional interest rate hikes, stating that even if the base rate reaches 1.50% per annum, it would not be considered a tightening level.

At a press conference held immediately after the Monetary Policy Committee meeting at the Bank of Korea in Jung-gu, Seoul on the 14th, Governor Lee said, "Even if the base rate is raised once more to 1.50% per annum, considering the future economic trends, the estimated neutral interest rate level, the policy rate rule, and various other standards, I believe that a 1.50% base rate cannot be regarded as tightening."

Regarding the recent rate hike to 1.25%, he stated, "The judgment of whether monetary policy is accommodative or not is evaluated based on various criteria such as the current economic situation, growth, and inflation," adding, "Although the base rate was raised today, considering the current situation and outlook of growth and inflation, it is still judged to be an accommodative level relative to the real economy."

The Bank of Korea raised the base rate to 1.25% on this day. This is the first time in two months since the last hike in November last year, and the first consecutive two-time increase since 2008.

Experts analyzed that the base rate could be raised two to three more times, reaching 1.5% to 1.75% by the end of the year.

Looking back at the rate hike in November 2018 (from 1.50% to 1.75%), this forecast gains credibility. The additional hike is expected to occur in the "third quarter." This is based on the judgment that the effects of the rate hike will be observed while monitoring inflation and major countries' monetary policy hikes. Furthermore, it is anticipated that raising rates around the time of the governor's replacement (April) and the presidential inauguration (May) will be difficult.

Professor Kim Tae-gi of Dankook University’s Department of Economics analyzed, "Due to significant economic uncertainty, direction will be indicated in the second quarter, and an additional hike is expected in the third quarter," adding, "It could reach 1.75% by the end of this year."

Yoon Yeo-sam, a researcher at Meritz Securities, said, "If volatility in risk assets expands during the US liquidity absorption process, it may be difficult to raise rates in the second half of the year," and added, "The additional rate hike is expected in August, with an upper limit of 1.50% forecasted for this year."

Professor Sung Tae-yoon of Yonsei University also emphasized, "We need to observe inflation, housing price increases, and household debt trends," adding, "It may be difficult to raise the base rate in May when the president is inaugurated, but the possibility of continuous hikes afterward should be kept open."

Regarding this, Governor Lee stated, "Although the rate is raised slightly, it is still at an accommodative level, so it will not cause significant damage to the real economy," and added, "It is a level that our economy can somewhat endure."

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