Despite Rate Hike, Stock Prices Soar

The Bank of Korea’s (BOK) Monetary Policy Committee on Thursday raised the call rate for the first time in 11 months by 0.25 percent to 4.75 percent.

In line with the raise, major local banks have also decided to increase their interest rates for the loans and savings deposits. In addition, in an attempt to absorb excess liquidity in the market, the committee raised the interest rates on liquidity adjustment loans and aggregate credit ceiling loans by 0.25 percentage points to 4.50 percent and 3.00 percent, respectively. “An appropriate monetary policy is necessary in response to an increase in currency in circulation and possible inflation fueled by rising oil prices,” said BOK governor Lee Seong-tae.

“The call rate of 4.75 percent will not be a barrier to achieving an economic growth of 4.5 percent or more,” Lee added, hinting at the possibility of raising the rate again.

Despite the call rate hike, the Korea Composite Stock Price Index closed above 1,900 points for the first time, up 19.79 percent (1.05 percent) from the previous day to 1,909.75. Bond interest rates also soared.

ssoo@donga.com aryssong@donga.com