South Korea’s Lee says country cannot avoid raising interest rates

South Korea's President Lee Jae Myung announced on Tuesday that the country must raise its benchmark interest rate in the near future to address a widening yield gap with the United States and align with global monetary tightening. During a cabinet meeting, Lee cited global debt pressures and the hawkish stance of the US Federal Reserve as factors indicating that domestic rate hikes were inevitable, despite concerns over rising household debt and default risks.

He noted that it is not common for South Korea's key policy rate to be lower than that of the US, and since they are now inversely positioned, narrowing the gap appears necessary. Lee emphasized that South Korea has no choice but to raise its interest rates, suggesting the move was almost a foregone conclusion. Currently, South Korea's benchmark interest rate is set at 3.00%, while the Federal Reserve's funds rate targets 3.75%-4.00%.

The President's intervention in interest rate policy, which is legally determined independently by the Bank of Korea (BOK), could raise concerns about the BOK's autonomy as policymakers discuss further rate increases. The remarks come amid discussions within the BOK about additional monetary tightening following two consecutive rate hikes.

Lee explained that tightening policy interest rates globally is expected to continue for an extended period. A BOK spokesperson declined to comment on the matter.