Korea’s Key Interest Rate Expected to be Raised Sooner or Later

Around half of the members on the Monetary Policy Committee (MPC) of the Bank of Korea proposed a benchmark rate increase on August 31 although the central bank froze the key rate that day.

“The benchmark rate needs to be raised so that the financial imbalance caused by monetary easing can be suppressed and more policy leeway can be given,” MPC member Lee Il-hyung said at that time, adding, “In addition, the expected inflation is in the mid-two percent range and consumer prices are approaching our target.” Two other members advocated his opinion.

“The pace of monetary easing needs to be somewhat slowed down by means of a benchmark rate increase,” one of the two said. The other one said that they should decide on when to raise the key rate while monitoring the pace of inflation. Meanwhile, two other members on the committee strongly advocated the current benchmark rate.

The MPC has seven members, including Bank of Korea Governor Lee Ju-yeol, who is in favor of a rate hike within this year. In other words, more than half of the members are likely to vote for an upward adjustment at their next meetings scheduled for October and November. Still, it is not easy to predict how things will turn out given the extremely disappointing employment indices for August released after last month’s MPC meeting.