Benchmark Interest Rate
The Bank of Korea decided to keep interest rates on hold at 2.50% at a monetary policy committee meeting on January 9. As a result, the nation’s benchmark interest rate has been unchanged for eight straight months, after rates were trimmed by 0.25% in May 2013.
At this point, a rise in interest rates may hamper the nation’s economic recovery, and it can be a heavy burden on members of society prone to household debt, which already exceeded a quadrillion won (US$941 billion). In contrast, reduced rates can be a short-sighted monetary policy, since the Federal Reserve has just started tapering its quantitative easing policy.
Brazil, India, Indonesia, South Africa, and Turkey have already raised their key interest rates to prevent currency depreciation. Other Asian countries are also expected to raise interest rates this year to respond to the US Fed’s tapering of quantitative easing.