[Bank of Korea Big Step] Monetary Policy Committee "Need to Continue Interest Rate Hike Stance Going Forward"

Bank of Korea Monetary Policy Committee Resolution
Base Interest Rate Raised from 1.75% to 2.25%
First Ever Big Step with Indication of Further Rate Hikes
Inflation Expected to Exceed Target Level for Considerable Period

Bank of Korea Governor Lee Chang-yong is striking the gavel at the Monetary Policy Committee plenary meeting held at the Bank of Korea in Jung-gu, Seoul on the 13th. Photo by Kang Jin-hyung aymsdream@

On the 13th, the Financial Monetary Policy Committee of the Bank of Korea implemented a 'big step' (a 0.50 percentage point increase in the base interest rate) for the first time in history and hinted at further rate hikes. Despite concerns about an economic recession and the increased interest burden on ordinary citizens, the Bank of Korea explained that it will focus on stabilizing the inflation rate at the target level.

In the monetary policy direction statement issued that day, the committee stated, "We have decided to operate monetary policy by raising the base interest rate from the current 1.75% to 2.25%," adding, "Although downside risks to the domestic and international economy have increased, high inflation continues broadly and short-term inflation expectations have risen significantly, making preemptive policy measures to prevent the entrenchment of high inflation more important for the time being."

The committee emphasized that while it is true that downside risks to the economy are significant when considering inflation and economic conditions comprehensively, uncertainty remains high, so it is important at this time to suppress the spread of inflation expectations through a big step to prevent acceleration of inflation.

In particular, the committee explained that it will continue the policy of raising interest rates. The committee said, "We will operate monetary policy with attention to financial stability while monitoring growth to ensure that inflation stabilizes at the target level over the medium term," and added, "Since inflation is expected to exceed the target level for a considerable period, it is necessary to continue the interest rate hike stance."

It further stated, "In this process, the magnitude and pace of future rate hikes will be determined by closely examining growth and inflation trends, risks of accumulated financial imbalances, changes in major countries' monetary policies, and overseas economic conditions including geopolitical risks."

Meanwhile, the committee pointed out that concerns about domestic and international economic recessions are growing while domestic inflation is rising sharply.

The committee analyzed, "The global economy has weakened amid persistent high inflation and the prolonged Ukraine crisis," adding, "In international financial markets, risk aversion has strengthened due to accelerated policy rate hikes by major countries and concerns about economic slowdown. The US dollar has remained strong, stock prices have fallen significantly, and major countries' government bond yields have fluctuated sharply."

It explained that the domestic economy continued its recovery. The committee analyzed, "Although export growth has somewhat slowed, private consumption has maintained its recovery, and facility investment showed signs of easing weakness," adding, "The employment situation continued to improve with a large increase in the number of employed persons."

It then forecasted that while domestic consumption recovery will continue, exports are expected to slow due to the weakening growth of major countries, causing this year's growth rate to somewhat fall short of the May forecast (2.7%), and the uncertainty of the growth path is expected to remain high.

The committee explained, "Consumer prices are expected to continue rising sharply above 6% for the time being, and the annual inflation rate is expected to significantly exceed the May forecast (4.5%) this year," adding, "Core inflation is also expected to remain at a high level above 4% for a considerable period."

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