South Korea became the first developed economy in Asia to raise interest rates since the beginning of the pandemic, a signal that policy makers see rising household debt and inflation as a bigger threat to the economy than the resurgence of the virus driven by the Delta variant.
The Bank of Korea on Thursday increased the benchmark seven-day repurchase rate by 0.25 percentage point to 0.75% from its historically low 0.50% that had been in place since May 2020. It said the country’s economy was continuing to recover and kept this year’s growth outlook unchanged at around 4%.
The bank’s move was being closely watched, as policy makers weighed measures to curb inflation against the threat posed to economies by the rapidly spreading Delta variant. A resurgence of the virus in countries with little protection from vaccines has disrupted supply chains, just as the export boom that has driven the recoveries of some countries is showing signs of slowing.
South Korea is battling its largest outbreak of the pandemic, reporting more than 1,000 new daily cases for more than 50 days. Last Friday, the country extended social distancing measures in the Seoul metropolitan area until Sept. 5.
But central bank Gov. Lee Ju-yeol said the surge in cases was unlikely to significantly impact the economic recovery, which has been powered by overseas demand for consumer electronics, semiconductors and cars.
