The Bank of Korea raised the key interest rate again after just a month to catch up with soaring inflation.
The Bank of Korea Monetary Policy Committee (hereinafter referred to as the Monetary Policy Committee) raised the key interest rate from 1.50% per annum to 1.75% by 0.25 percentage points (p) at the monetary policy direction meeting held on the morning of the 26th.
As a result, the base rate rose by 0.25 percentage points five times in the past nine months, following August and November of last year and January and April of this year, and 1.25 percentage points in all.
In particular, it is the first time in 14 years and 9 months that the MPC has raised the base rate for two consecutive months following July and August 2007.
The reason why the MPC decided to make this exceptionally consecutive additional increase is because, above all, the recent inflation (inflation) pressure is at a level that is difficult to ignore.
In April, the CPI jumped 4.8% from the same month last year due to a surge in international energy prices and disruptions in the supply chain.
It is the highest record in 13 years and 6 months since October 2008 (4.8%).
The expected inflation rate, which corresponds to the expected inflation rate for the next one year, was 3.3% in May, the highest in 9 years and 7 months since October 2012 (3.3%).
Producer prices, which are reflected in consumer prices with a time lag, also rose for four consecutive months until last month.
Compared to April of last year, a year ago, the rate of increase reached 9.2%.
It is interpreted that the possibility of a reversal of the Korea-US base rate due to the so-called 'big step' of the US Federal Reserve (Fed/Fed) (a 0.5 percentage point increase in the base rate at once) was also considered.
The US took a big step for the first time in 22 years earlier this month, and as the possibility of an additional big step increased, the MPC said that it is necessary to widen the gap further in case of capital outflow due to the inversion of the benchmark interest rate in the two countries in the future, the depreciation of the won, and increase in import prices. You may have judged.
With the 0.25 percentage point increase by the MPC today, the base rate gap between Korea (1.75%) and the US (0.75∼1.00%) widened again to 0.75∼1.00 percentage points.