South Korea rises policy rate to alleviate household debt

09.09.2021 - Kulakov Vladimir
South Korea rises policy rate to alleviate household debt

The Bank of Korea (BOK) increased its policy interest rate in August, saying the move would help weaken household debt growth going forward. The central bank said it would continue to tighten policy as inflationary pressures linger.

The BOK added 25-basis points to 0.75% in its policy rate. It was the central bank’s first increase rate in almost three years and the first major Asian central bank to withdraw from pandemic-era monetary funding.

The added basis points were expected to slash 0.4 percentage points in household debt within the first 12 months, indicating further policy tightening.

The BOK stated it would gradually adjust monetary policy following an expected more than 2% surge in inflation.

Policymakers warned of more rate hikes in the future due to a debt spree in the country. Household bank lending recorded the biggest annual increase in the June quarter since 2003, when the BOK started releasing important monetary data.

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