[Weekly Outlook] Will the Bank of Korea Raise the Base Rate by 0.5%P? 'Big Step' Possible Amid 6% Inflation

Lee Chang-yong, Governor of the Bank of Korea, holds a briefing session on the status of inflation target management at the Bank of Korea press room in Jung-gu, Seoul on the 21st. Photo by Moon Ho-nam munonam@

[Asia Economy Sejong=Reporter Kwon Haeyoung] As domestic consumer prices surpassed 6% for the first time in about 24 years since the foreign exchange crisis, the biggest focus of our economy this week is whether the Bank of Korea will take a 'big step' (a 0.5 percentage point hike in the base interest rate at once) for the first time in history.

According to the Bank of Korea on the 10th, the Monetary Policy Committee will hold a monetary policy meeting on the 13th to decide whether to adjust the base interest rate. Due to the strong prices of raw materials and grains, consumer prices in June rose 6% compared to a year earlier, reaching the highest level in 23 years and 7 months.

Market expectations for a big step by the Bank of Korea are increasing. Some speculate that due to the possibility of sluggish consumption and economic recession caused by a sharp increase in the base interest rate, the rate hike may be limited to 0.25 percentage points.

The Bank of Korea will also release the 'Financial Market Trends for June' on the 12th, prior to the rate decision. Attention is focused on whether household loans in the banking sector, which increased in April and May, continued to rise.

The Statistics Korea will announce the June employment trends on the 13th. The number of employed persons in May increased by more than 900,000 compared to a year earlier, marking the largest increase for the same month in 22 years. This was due to the recovery of daily life from COVID-19, improvement in service sector employment, and the combined effects of special factors such as Omicron quarantine personnel and local elections. The interest lies in whether this favorable employment trend has continued despite the recent surge in economic uncertainty.

The Ministry of Economy and Finance will publish the July issue of the Fiscal Trend report on the 14th. The Fiscal Trend report provides an overview of the country's finances, including national tax revenue and expenditure, fiscal balance, and national debt. As of the end of April, the national debt reached 1,001 trillion won, surpassing 1,000 trillion won for the first time in history. The fiscal deficit reached 37.9 trillion won.