The Bank of Korea raised the benchmark interest rate by another 0.25 percentage point (p) today (13th) to lower the rate of consumer price inflation, which is still at 5%.
This is the first seven consecutive hikes in history (4/5/7/8/10/11 in 2022 and January in 2023).
The reason why the Bank of Korea has continued to raise prices even after the year has changed is because, above all, prices are still unstable.
In December last year, the consumer price index (109.28) rose 5.0% from a year ago.
Although the rate of increase peaked in July (6.3%) of the same year and is falling, it has maintained above 5% for the eighth month since May.
The expected inflation rate, which corresponds to the expected increase in consumer prices for the next year, is also high at the upper 3% range (3.8% in December 2022).
On December 14 last year (local time), the U.S. Federal Reserve's big step (a 0.50 percentage point increase in the base interest rate) raised the standard for Korea (3.25%) and the United States (4.25-4.50%) to 1.25 percentage points. The difference in interest rates is also considered a major reason for the decision to raise the BOK.
The 1.25 percentage point is the largest interest rate reversal between the two countries since the 1.50 percentage point in October 2000.
From the point of view of the won, which is not a key currency like the dollar (the basic currency for international payments and financial transactions), if the base interest rate is significantly lower than that of the United States, the risk of foreign investment funds withdrawing and the value of the won falling increases.
With the Bank of Korea's decision to raise interest rates today, the gap with US interest rates has narrowed to 1.00 percentage points.
(Photo = Yonhap News)