South Korea became the first major Asian economy to raise interest rates Thursday, with more hikes in the pipeline as its central bank indicated that financial risks pose a bigger threat to the economy than the latest virus outbreak.
Governor Lee Ju-yeol said the quarter-percentage-point hike to 0.75% still left rates in an accommodative position that supports the economy. He added that the current delta wave is having less of a negative impact on growth as consumers adjusted behavior to the new normal of the pandemic.
Policy adjustments over the coming months would be gradual, with the timing of the next move taking into account Covid-19 developments, financial imbalances and moves by other central banks including the Federal Reserve, he said.
The move shows the focus of monetary policy in Korea has pivoted from propping up the economy to curbing a debt-driven asset bubble. Lee’s comments will give central bankers, investors and market watchers food for thought as they await Fed chair Jerome Powell’s Jackson Hole speech for clues on how and when the U.S. might shift its policy.