South Korea to raise rates as financial risks mount
South Korea is set to increase interest rates on Thursday following an expansion in household debt and home prices’ risk to financial stability, a Reuters poll showed. If this happens, South Korea will be the first major economy to ease monetary policy in Asia.
However, only 16 of 30 analysts polled by Reuters predicted the Bank of Korea (BOK) to raise its base rate by 25 basis points to 0.75%, while the remaining 14 expect the bank to leave it steady at the record low.
14 of 22 analysts who gave end-2021 predictions voted that the bank would raise only once, while the rest voted twice.
18 analysts who gave end-2022 estimates believed the central bank would raise rates next year. 10 expected the base rate at 1.25% by the end of next year, seven at 1.00%, and one at 1.50%.
Analyst Woo Hye-young of eBest Investment & Securities said the BOK will focus on financial stability rather than economic fundamentals in deciding its monetary policy.
Bank lending to households climbed 9.7 trillion won ($8.32 billion) in July, even after the government enforced new caps on bank loans.