The Bank of Korea Raises Interest Rates for the Fourth Consecutive Time... Inflation Forecast Revised Up to 5.2% (Update)

Base Interest Rate Raised from 2.25% to 2.50%

Bank of Korea Governor Lee Chang-yong is presiding over the regular Monetary Policy Committee meeting held on the 25th at the Bank of Korea in Jung-gu, Seoul. / Photo by Joint Press Corps

[Asia Economy Reporter Seo So-jung] The Bank of Korea is tightening monetary policy by significantly raising this year's consumer price inflation forecast to 5.2%, the highest in 24 years, along with a base interest rate hike on the 25th. The Monetary Policy Committee (MPC) had previously raised the base rate in April, May, and July meetings, and with an additional rate hike this month, it set a record for the first-ever four consecutive increases (April, May, July, and August).

Last month, the MPC implemented the first-ever big step (a 0.50 percentage point increase in the base rate), but considering that the high inflation situation is expected to continue for some time, it plans to maintain the upward trend. If the Bank of Korea raises rates again at the remaining monetary policy meetings this year (October and November), the year-end base rate could rise to a maximum of 3.00%.

The Bank of Korea's Monetary Policy Committee held a monetary policy meeting on this day and raised the base rate by 0.25 percentage points from 2.25% to 2.50% per annum. This year, the base rate was raised by 0.25 percentage points each in January and April, by 0.50 percentage points in July, and by an additional 0.25 percentage points today, returning to the August 2014 rate level of 2.50%.

The Bank of Korea's unprecedented move to raise rates four consecutive times is due to strong global inflationary pressures and domestic prices also soaring, making 'controlling inflation' the top priority. Although expectations for the peak of inflation have increased recently due to falling international oil and grain prices, prices are not easily coming down.

The expected inflation rate for the next year, which corresponds to the inflation expectations, also fell by 0.4 percentage points from the record high of 4.7% in July to 4.3% this month, but it still remains at a high level in the 4% range. In particular, recent adverse weather conditions such as high temperatures, drought, and heavy rain have led to poor agricultural yields, causing vegetable prices to surge, and combined with Chuseok holiday prices, economic agents' inflation anxiety is spreading rapidly.

In its revised economic outlook today, the Bank of Korea also raised the consumer price inflation forecast, currently at 4.5%, by 0.7 percentage points to 5.2%. If a price increase in the 5% range materializes, it will be the highest record in 24 years since 1998 (7.5%). The real gross domestic product (GDP) growth rate for this year was also revised downward from 2.7% to 2.6%.

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