(Seoul=NSP NEWS) = On the 16th, the Bank of Korea’s Monetary Policy Committee raised the base interest rate by 0.25 percentage points from 2.50% to 2.75%. This officially marks the end of the 42-month period of accommodative monetary policy that followed the rate cut in October 2024 and signals the start of a new tightening cycle.

This hike is the result of the monetary authorities taking action as the consumer price inflation rate consistently exceeded the Bank of Korea's price stability target of 2% while the growth of household debt remained unchecked. During the tightening period from August 2021 to October 2024, the Bank of Korea rapidly raised the base interest rate to 3.50% in January 2023, after having lowered it to a record low of 0.50%.

Subsequently, the Bank of Korea maintained high interest rates through a prolonged freeze, but put an end to tightening by cutting rates in October 2024 with the aim of defending domestic demand and ensuring financial stability. However, as the trend of “high inflation and improving growth” has become increasingly evident recently, the central bank has resorted to raising interest rates again for the first time in three years and six months.

The focus of the financial markets is on the timing and pace of future tightening rather than on this single rate hike itself. Market experts predicted that intense competition will ensue amidst a tightening stance for the time being, stating, "Volatility in the bond and foreign exchange markets will be largely determined by the path of further benchmark interest rate hikes and the direction of monetary policy that the Bank of Korea will present."