Bank of Korea Governor: Call Rate Increase Imminent

Park Seung, the governor of the Bank of Korea (BOK), sent a strong signal that call rate might be raised next month.

In response to this, the market interest rate soared, including the yield on the benchmark three-year government bond, which rose by 0.23 percentage points to 4.5 percent.

“We have entered the stage to adjust our monetary policy,” said Park at a press conference after the BOK’s financial and monetary committee froze the call rate for September at 3.25 percent.

The remark signals that the low rate policy to stimulate the economy might change.

“We considered raising the overnight rate in order to rectify the distortion of resource allocation coming from long-time low rates. However, we decided to freeze it, judging that economic recovery is still uncertain,” Park said. “When the economy begins to recover as predicted, we will seriously review the policy next month.”

The BOK has not raised the call rate since May 2002 when it raised the rate from 4.00 percent to 4.25 percent.

A higher call rate leads to a higher market rate, increasing the burden of households and businesses that borrow money.

Kyung-Joon Chung news91@donga.com