The Bank of Korea (BOK)'s Monetary Policy Committee set the benchmark interest rate at 1.25 percent per year, raising 0.25 percentage points at a meeting on Jan. 14, the first time this year.
As a result, the Bank of Korea's key interest rate returned to the level in early 2020, before the COVID-19 economic shock occurred.
The BOK step reflects that uncertainty caused by COVID-19 is still high, but inflationary pressure is high and ultra-low interest rates have led to a serious increase in Korea's household debt.
As of the end of September last year, Korea's total household debt balance was 1,845 trillion won. At the end of the year, the growth rate was dampened by financial authorities' intensive and direct loan regulations, but it is expected to exceed 1,900 trillion won in the first half of this year.
The Bank of Korea said, "In the future, the timing of further adjustment of monetary policy will be determined by closely examining the COVID-19 development situation, changes in growth and inflation, cumulative risks of financial imbalances, ripple effects of key rate hikes, and monetary policy changes in major countries."