SEOUL, Sept. 14 (Yonhap) — Members of the central bank’s rate-setting board said growing risks from financial imbalances pointed to a need to conduct a rate hike without delay, minutes from the latest policy meeting showed Tuesday.
In the policy meeting on Aug. 26, the monetary policy board raised the benchmark interest rate by a quarter percentage point to 0.75 percent from a record low of 0.5 percent, marking the first pandemic-era rate hike.
It was the first rate hike since November 2018, when the BOK lifted the key rate.
The decision was not unanimous, as one member cast a dissenting vote, arguing for a rate freeze.
According to the minutes, board members said despite the fourth wave of the pandemic, a rate hike is necessary in light of deepening financial imbalances and economic recovery momentum.
“The latest rate hike will be the first step toward adjusting the low interest rate policy,” a board member said.
Another member said inflation pressure is building up amid the economic recovery, reducing the need to maintain an accommodative monetary policy stance.
After the August meeting, BOK Gov. Lee Ju-yeol hinted that the central bank may again raise the key rate this year or early next year.
South Korea’s household credit reached a record high of 1,805.9 trillion won (US$1.54 trillion) as of end-June, up 41.2 trillion won from three months earlier on the back of solid loan demand.
In August, the BOK kept its 2021 growth outlook for the Korean economy at 4 percent, but raised its inflation projection to 2.1 percent from its earlier estimate of 1.8 percent amid the economic recovery.
The central bank said the latest spike in COVID-19 cases has increased downside economic risks, but it would not be serious enough to undermine the growth path of Asia’s fourth-largest economy.