사진 확대 Shortly after the Bank of Korea raised its key interest rate to 3.0% per annum at the Monetary Policy Committee on the 27th, Bank of Korea Governor Shin Hyun-song explains the direction of monetary policy to reporters. It is the first time in a year and nine months that the benchmark interest rate has risen to the 3% range since November 2024. Photo Sharing Foundation
The Bank of Korea’s two consecutive months of raising its key interest rate was compounded by three factors: inflation, growth rate, and financial market stability.
First of all, the pressure to increase core prices has increased. The price index, excluding food and energy, rose 2.6% in July from the same month last year, widening the increase from June (2.5%).
The stronger-than-expected growth also lowered the burden on the Bank of Korea following the rate hike. In the second quarter of this year, real gross domestic product (GDP) increased 0.6% quarter-on-quarter and 3.7% year-on-year.
Analysts say that the fact that financial stability risks such as rising housing prices in the Seoul metropolitan area and rising household debt have not subsided has also affected the decision to raise interest rates. Lee Seung-hun, a professor at Soongsil University (former vice president of the Bank of Korea), said, “The Bank of Korea Governor Shin Hyun-song’s expression of ‘blocked by ho-mi’ on the 27th implicitly shows the atmosphere of the Monetary Policy Committee,” adding, “If interest rates are raised preemptively, we can avoid a situation that raises interest rates even more later.”
◆ ‘Prices’ appeared 13 times in the decision
The most important thing I saw was the judgment on inflation. We were concerned that inflation would grow and that high levels of prices would persist for a long time.”
Governor Shin emphasized this at a press conference shortly after the Monetary Policy Direction Decision Meeting of the Monetary Policy Committee. Price was by far the most frequently appeared keyword in the monetary policy direction decision released on the same day. Prices were mentioned 13 times in total, showing the highest frequency, and “rising” also appeared 12 times. It emphasized inflation and expected inflation pressure as the key background for raising the benchmark interest rate.
“Finance” has also been mentioned 10 times and has emerged as a major keyword. It shows that financial and foreign exchange market volatility was an important variable in determining the base rate. Analysts say the need for the Bank of Korea to curb the real estate market and household loan growth has grown as expectations of a rise in housing prices continue, especially in the Seoul metropolitan area, amid household debt exceeding 2,000 trillion won recently. Growth appeared nine times. The sharp increase in the growth outlook due to strong exports and investment seems to have served as the basis for the judgment that raising interest rates will not cause a significant economic contraction.
It is noteworthy that the phrase “interest rate hike” was omitted from the decision on the monetary policy direction. As a result, some interpreted that the Bank of Korea could start controlling the speed in the future. The July decision contained the expression, “We believe that future monetary policy needs to continue the trend of raising interest rates,” but the decision did not contain the phrase.
◆ This year’s growth rate is sharply raised to 3.3%
On the same day, the Bank of Korea raised its growth forecast for this year by a large margin from 2.6 percent to 3.3 percent, reflecting a strong semiconductor economy, improved facility investment and expanded consumption recovery. This is higher than the government’s forecast of 3.0%. It increased 0.7 percentage points in three months from the May forecast. Yang Joon-seok, an economics professor at Catholic University, said, “The Bank of Korea has presented a growth forecast of 3.3% this year, and if Korea’s potential growth rate is 1.5 to 1.8%, this is nearly double the growth rate,” adding, “It can be interpreted as ‘overheated’ in the economy as a whole.” The Bank of Korea also raised its growth forecast for next year to 2.9 percent from 2.1 percent. Joo Won, head of the Hyundai Economic Research Institute’s research division, pointed out, “Raising interest rates back-to-back based on macro price stability targets can help stabilize prices, but it can increase the burden on vulnerable sectors such as consumption and construction investment.”
◆ Rate forecast 3.25 percent in six months
Six out of seven members of the Monetary Policy Committee agreed to raise the benchmark interest rate on the same day, and one member of the committee Hwang Geon-il expressed a minority opinion to freeze it. Governor Shin explained, “I sympathized with the big picture and there is a slight difference in terms of tactics.”
On the same day, the Bank of Korea also released a dot plot containing the outlook for the Monetary Policy Committee’s benchmark interest rate in six months. The dot plot shows the level of the benchmark interest rate, which seven members of the Monetary Policy Committee, including Governor Shin, believe is appropriate in the next six months, with three dots per person. In the dot plot, the upper end of the Monetary Policy Committee’s forecast for the benchmark interest rate in six months was 3.50% per year, up 0.25 percentage points from three months ago.
There were 10 points marked at 3.25% per year, 0.25 percentage points higher than the current base rate. Six were displayed at 3.50% per annum and five at 3.00% per annum, which is the same as the current base rate. Many members of the Monetary Policy Committee have left open the possibility that the benchmark interest rate will be one or two times higher than it is now in six months.
Regarding this, Governor Shin said, “We are expecting a modest increase path to raise it once more from the current level.” However, he added, “We will determine the timing and speed of further increases by comprehensively considering prices, growth rates, exchange rates, and financial stability.”
[Reporter Kim Jung Beom / Reporter Kwak Eun San]