The Bank of Korea raised its base rate by 0.25 percentage points to 3% on the 27th during a Monetary Policy Board meeting. This marks a "back-to-back" rate hike, following a similar increase last month—the first in three years and six months. Such consecutive hikes are rare, having occurred only three times in the Bank’s history. As a result, the base rate has risen to the 3% range for the first time in one year and nine months since November 2024. The interest rate gap with the U.S. narrowed from 1 percentage point to 0.75 percentage points. Governor Shin Hyun-song explained the rationale for the consecutive hikes, stating, “Preemptive measures are critical to preventing the spread of inflationary pressures.” He referenced the proverb, “A problem stopped with a hoe doesn’t require a rake,” and added, “We have implemented policies with a hoe, not a rake,” as an analogy. Since the second half of last year, high exchange rates and elevated oil prices triggered by the Middle East war have kept South Korea’s consumer price growth above the Bank’s 2% target for nearly a year since September 2025. The Bank revised its 2026 growth forecast upward from 2.6% to 3.3% during the meeting. It views the economy as robust enough to withstand rate hikes. Governor Shin noted, “Monetary policy alone cannot curb housing prices,” but added, “Preemptive measures will help mitigate the recent surge in housing prices and household debt in the capital region.” Concerns are growing that the Bank’s tight monetary policy could clash with the government’s expansionary fiscal approach. The government has announced a budget for next year exceeding 800 trillion Korean won plus alpha (+α), a more than 10% increase from this year. Professor Park Jung-soo from Sogang University’s Department of Economics warned, “If the government stimulates the economy through fiscal spending while the Bank rapidly raises rates to stabilize prices, market interest rates could rise further, increasing borrowing costs—a potential side effect.”     (ICE SEOUL)

Fonte notizia: The CHOSUN DAILY