South Korea Doesn't Seem Too Worried About Delta. Are You?
The first major Asian economy to hike rates post-pandemic is more stressed about surging household debt and asset bubbles. That’s a big bet at a risky moment.
Delta, schmelta.
Photographer: SeongJoon Cho/BloombergThe Bank of Korea has become the first advanced Asian economy to raise interest rates after the pandemic. This isn’t a one-and-done. When central banks start cutting or raising borrowing costs, they rarely pause after one move, because a single step gets little macroeconomic traction. Policy makers also face a public-relations debacle if they abandon new strategies quickly. So Governor Lee Ju-yeol would have thought long and hard before this decision. The question is whether the pandemic behaves.
On Thursday, the BOK raised its benchmark rate a quarter of a percentage point to 0.75%, citing worries about asset bubbles and other financial imbalances. Household debt has been surging and the property market is frothy. Lee, meanwhile, seems unfazed by delta’s risks. “The Board will gradually adjust the degree of monetary policy accommodation as the Korean economy is expected to continue its sound growth and inflation to run above 2% for some time, despite ongoing uncertainties over the virus,” the BOK said in a statement. In other words, delta won’t stop the BOK from hiking. Capital Economics’ Alex Holmes expects that, given the hawkish comments, the next increase will come in November, with the tightening cycle continuing well into 2022.