By Kim Boram
SEOUL, Aug. 27 (Yonhap) -- The Bank of Korea (BOK) on Thursday delivered its first back-to-back rate hike in three years and seven months, signaling its determination to curb mounting inflationary pressure, rising housing prices and a weak Korean won.
The BOK Monetary Policy Board raised the benchmark rate by 0.25 percentage point to 3 percent, following a 0.25 percentage point increase at its previous meeting in July.
Gov. Shin Hyun-song described the rate hike as a "preemptive, proactive and advanced" response to bring inflation and other financial risks under control, while Asia's fourth-largest economy maintains solid growth driven by strong semiconductor exports.
"Most studies show that a proactive policy response can stabilize inflation expectations more quickly than a belated one, thereby reducing the intensity and duration of monetary tightening and ultimately easing the burden on growth," he told reporters during a press conference.
He said it is better to act on problems immediately, citing the proverb "To block something with a shovel that could have been blocked with a hand hoe," a Korean equivalent of "A stitch in time saves nine."
"This proverb teaches us that if you wait, the hole will get much bigger and require much more effort to fix," he said. "This time, we decided to use a hand hoe."
The country's consumer prices rose 2.8 percent in July from a year earlier, falling below the 3 percent mark for the first time in three months but still remaining well above the BOK's 2 percent target.
In particular, core inflation, which excludes volatile food and energy prices, advanced 2.6 percent from a year earlier in July, the sharpest increase since the 2.8 percent growth posted in December 2023.
Housing prices have been rising steadily, especially in the greater Seoul area, despite the government's efforts to tighten lending rules, raising concerns over household debt.
Although the won rose to around the 1,380-won level against the U.S. dollar this week, the Korean currency had hovered around 1,550 won in June as foreign investors dumped local stocks amid a strong U.S. dollar.
Shin acknowledged that the BOK's rate hike at two consecutive meetings is "unprecedented," saying the rare action will also help stabilize inflation, housing prices and the foreign exchange market.
"This preemptive measure will help mitigate the recent upward trend in housing prices in the Seoul metropolitan area and the rise in household debt," he said.
"I believe that an early response through monetary policy will help stabilize the foreign exchange market."
However, the BOK chief remained cautious about another rate hike in the near future.
Citing the board's forward guidance chart, Shin said he expects the rate to rise gradually over the next six months.
The dot plot, which refers to the bank's forward guidance chart, showed 10 dots at 3.25 percent, six at 3.5 percent and five at 3 percent for the next six months.
"This can be interpreted as meaning that the board would raise the rate once in the upcoming four meetings," he explained. "We need gradual moves because we should review the impact of the consecutive rate hikes."
