Yonhap News Agency, Seoul, November 24th. The Financial and Monetary Committee of the Bank of Korea (the central bank) met on the morning of the 24th and decided to raise the benchmark interest rate by 25 basis points to 3.25%. This is the first time in the history of the central bank to raise interest rates six times in a row.
As a result, the central bank raised the benchmark interest rate 9 times in 1 year and 3 months, including 7 times by 25 basis points and 2 times by 50 basis points, for a total of 275 basis points. Taking into account factors such as the possibility of the United States adjusting the speed of deflation, the stable won-dollar exchange rate, the risk of poor funding and credit, and economic stagnation, the central bank slowed down the pace of interest rate hikes from 50 basis points last month to 25 basis points.
It is reported that the central bank raised interest rates again this time mainly because the upward trend in prices has not weakened significantly. South Korea's consumer price index (109.21) in October rose by 5.7% year-on-year, and the increase expanded again after three months. The expected inflation rate, which predicts price increases in the coming year, was 4.2% in November, a slight decrease from the previous month (4.3%), but remained above 4% for five consecutive months.
In addition, after the Federal Reserve (Fed) decided to raise interest rates by 75 basis points on the 2nd local time, the difference between the benchmark interest rates in South Korea (3%) and the United States (3.75%~4%) also became the main background for this rate hike. Although the gap between South Korea and the U.S. benchmark interest rates has narrowed to 0.75 percentage points at present, if the Fed continues to raise interest rates next month, the gap will widen again to 1.25 percentage points.
For the non-key currency Korean won, the benchmark interest rate is significantly lower than that of the United States, which will lead to the loss of foreign capital and increase the risk of the Korean won's depreciation. This is because the lower the value of the won, the higher the price of imported products converted into won.
It is also speculated that the minutes of the November regular meeting of the Federal Open Market Committee (FOMC) released on the same day showed that most members agreed to slow down the pace of raising the benchmark interest rate, which also had a certain impact on the rate hike rate. (Finish)
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