In order to catch the soaring inflation, the Bank of Korea took the 'big step' of raising the base interest rate by 0.50 percentage points (p) at once for the first time in history.
The Bank of Korea Monetary Policy Committee (hereinafter referred to as the Monetary Policy Committee) raised the key interest rate from 1.75% per annum to 2.25% by 0.50 percentage points at the monetary policy direction meeting held today (13th) at 9 am.
Accordingly, the base rate increased by 0.25 percentage points five times, 0.50 percentage points once, all 1.75 percentage points in the past 10 months, following August and November of last year and January, April, and May of this year.
In particular, this is the first time that the Monetary Policy Committee raised 0.50 percentage points, double the normal increase (0.25 percentage points).
The three consecutive (April, May, and July) rate hikes are unprecedented.
The Monetary Policy Committee implemented this unusual monetary policy because inflation (inflation) pressure is so severe.
The consumer price index in June jumped 6.0% from the same month last year due to the rise in international raw material and grain prices.
This is the highest growth rate in 23 years and 7 months since November 1998 (6.8%) during the financial crisis.
The expected inflation rate (general consumer), which corresponds to the expected value of consumer price inflation for the next one year, also rose to 3.9 from 3.3% last month.
It is the highest in 10 years and 2 months since April 2012 (3.9%), and the increase of 0.6 percentage points is the largest record since the start of statistics in 2008.
It is interpreted that the imminent 'Korea-US base rate inversion' was also taken into consideration for this big step.
On the 14th-15th (local time) of last month, the U.S. Federal Reserve took the first giant step (a 0.75 percentage point increase in the key interest rate) at the Federal Open Market Committee (FOMC) regular meeting for the first time in 28 years since 1994. , At that time, the gap between the base rate (policy rate) between Korea (1.75%) and the US (1.50∼1.75%) was narrowed to 0.00∼0.25% points.
If the base rate is lower than that of the US in terms of the won rather than a key currency like the dollar (basic currency for international settlements and financial transactions), foreign investors' funds may flow out in pursuit of a higher rate of return, and the value of the won may drop sharply.
As the MPC raised the key interest rate by 0.50 percentage points, the gap with the US widened to 0.50 to 0.75 percentage points.
However, if the Fed takes another giant step as expected by the market on the 26th and 27th (local time), it is still difficult to avoid a reversal in which the US key interest rate rises by 0.00-0.25 percentage points.
(Photo = provided by the Bank of Korea, Yonhap News)