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Bank Of Korea Retains Key Rate; Signals Rate Hike In November

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Bank of Korea maintained its key interest rate on Tuesday but signaled a rate hike as early as in November to rein in high inflation and household debt.

The Monetary Policy Board of the Bank of Korea decided to leave its base rate unchanged at 0.75 percent. The bank had raised its rate by a quarter-point in August.

Governor Lee Ju-yeol said the bank can consider hiking key rate at the next meeting should the economic recovery proceed as expected.

The board said it will appropriately adjust the degree of monetary policy accommodation as the Korean economy is expected to continue its sound growth and inflation to run above 2 percent for some time, despite ongoing uncertainties over the virus, the bank said in a statement.

The bank expects consumer price inflation to run at the mid-2 percent level for some time, exceeding the path projected in August, before declining somewhat.

Core inflation is forecast to increase to around the upper-1 percent level.

Going forward, the economy is likely to continue its recovery driven by private consumption. The economy is forecast to grow this year at a pace around 4 percent, unchanged from the prior outlook.

Further, policymakers observed that the increase in household loans remains at a high level, and housing prices have continued to increase rapidly in all parts of the country.

With the economy set to carry on expanding at a decent pace, a November hike is highly likely, Alex Holmes, an economist at Capital Economics, said. The economist expects three further 25 basis point hikes in 2022, taking the policy rate to 1.75 percent.

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