President Lee says rate hike is unavoidable — Channel NewsAsia

South Korean President Lee Jae-myung said that the country will not be able to avoid raising its benchmark interest rate in the near future. At a government meeting on Tuesday, October 13, he explained this by the need to narrow the gap between South Korean and U.S. rates, Channel NewsAsia reports.

Rate gap

South Korea's benchmark rate currently stands at 3.00%, while the U.S. federal funds target range is 3.75% to 4.00%. Lee noted that a situation in which the Korean rate is lower than the U.S. rate is uncommon, so the gap needs to be narrowed, in his view.

The president also pointed to the U.S. Federal Reserve's tight monetary policy and global pressure related to debt problems. At the same time, he expressed concern over growing household debt and the risks of defaults.

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Central bank independence

Interest rates in the country are set independently by the Bank of Korea. The president's statement was an unusual political intervention in the sphere of monetary policy and may increase scrutiny of the central bank's independence.

According to analysts, the Bank of Korea is considering further monetary tightening after two consecutive rate hikes. A Bank of Korea representative did not immediately comment in response to journalists' inquiries. Lee called global monetary tightening a phenomenon that, in his view, may continue for a long time.