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Base Rate Expected to Increase by 0.25% Due to High Prices...Loan Interest Rate Hike is on Hold

The Bank of Korea is expected to raise its benchmark interest rate seven times in a row for the first time in history on the 13th.

This is because considering the high prices that have persisted since last year and the interest rate gap with the United States, it is compelled to raise interest rates.

Economists expect the Monetary Affairs Committee to raise the benchmark interest rate by 0.25% on the 13th, when the first monetary policy direction meeting of the year will be held.

If interest rates rise again, the number of consecutive rate hikes that began in April last year will increase to seven.

The biggest reason for the rate hike is high prices, which reach 5%.

Last year, consumer price index growth fell slightly after hitting 6.3 percent in July, but it is still in the 5 percent range.

In December last year, the consumer price index was 109.28, up 5% year-on-year.

On 31 March, Han predicted that "consumer prices will continue to rise at a rate of around 5% early next year."

Governor Lee Chang-yong Han also said, "It is expected that prices, which are the most important for people's lives, will continue to rise above the target level," adding, "This year's monetary policy will continue to focus on price stability."

The gap with the US interest rate benchmark, which has widened to 1.25 percentage points, is also a burden.

The U.S. Federal Reserve has raised its benchmark interest rate by 4.25% over the past year, taking into account consumer price index growth, which rose to around 9% at one-point last year.

As a result, the US benchmark interest rate became 4.25~4.5%, which is 1.25 percentage points higher than the Korean benchmark rate of 3.25%.

The 1.25 percentage point is the largest U.S.-Korea rate inversion since 1.5 percentage points in October 2000.

However, even if the benchmark interest rate is raised this time, there are mixed views on whether the maximum will remain at 3.5% this year or whether it will rise to 3.75% with further hikes in the future, citing domestic economic conditions such as real estate and concerns about a global recession.

Meanwhile, in response to the prospect of such interest rate hikes, financial authorities have stepped up monitoring and are wary of excessive lending rate hikes.

In an attempt to prevent the flow of funds to banks due to interest rate hikes, it is not the right course of action for banks to reap profits by raising lending rates only to open up the deposit rate difference.

As the upper end of Woori Bank's lending rate exceeded 8% per annum, the variable interest rate for residential mortgages of the five major commercial banks was formed at 5.25~8.12% per annum on the 3rd.

The 8% mortgage rate is the first since the 2008 global financial crisis.

On the other hand, the interest rate on bank term deposits, which was 5% range before the end of last year, fell to the low 4% range in the new year.

The Financial Services Commission and the Financial Supervisory Service then went to check that the lending rate, like the deposit rate, should not be raised unreasonably as there are few factors for further rise.

Since the financial authorities encouraged the deposit rate to be raised last year, but they also showed mixed results, such as cracking down on interest rate competition in order to concentrate liquidity, there is considerable concern that it may be excessive intervention this time, but there is also a strong argument that the interest rate cannot be left as it is in view of the money crunch in the second financial sector. [Nocutnews]


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