The Bank of Korea raised the key interest rate again for the first time in three months since January to keep up with the soaring inflation even while the governor was vacant.
The Bank of Korea Monetary Policy Committee (hereinafter referred to as the Monetary Policy Committee) raised the key interest rate by 0.25 percentage points (p) from the current 1.25% per annum to 1.50% at the monetary policy direction meeting held on the morning of the 14th.
Accordingly, the base rate jumped by 0.25 percentage points four times in the past eight months, including August and November of last year and January and today of this year, for a total of 1.00 percentage points.
The MPC decided to raise the base rate abruptly despite concerns over economic downturn due to the absence of a governor and the Ukraine crisis, above all because the recent inflationary pressures are difficult to ignore.
As international oil prices soared due to the Ukraine crisis, the consumer price index rose 4.1% in March from the same month last year.
The 4% increase is the first in 10 years and 3 months since December 2011 (4.2%).
The 'expected inflation rate', which corresponds to the expected inflation rate for the next one year, also reached 2.9%.
It is the highest in 7 years and 11 months since April 2014 (2.9%).
The possibility of a so-called 'big step' by the US Federal Reserve (Fed/Fed) (a 0.5 percentage point increase in the key interest rate at once) is also mentioned as a background to the decision of the Monetary Policy Committee.
The MPC took a preemptive step in raising interest rates compared to major advanced countries such as the United States in August last year, but may have decided that it is necessary to widen the gap in case of capital outflows or the depreciation of the won due to the inversion of the base rate in the future.
With today's 0.25 percentage point increase, the gap with the US Federal Reserve's base rate (0.25-0.50%) has widened to 1.00-1.25 percentage points.