The Bank of Korea raised its policy rate from 2.50 % to 2.75 % on July 16, and on August 27 it was increased again to 3.00 %. This monetary policy action was taken to curb inflationary pressures and respond to risks of financial instability.
Following the July policy‑rate hike, the Bank’s new loan rates for retail deposits rose to 4.64 % for term loans and 4.48 % for short‑term loans, respectively a modest increase. In particular, the variable‑rate short‑term loan rate reflected the key policy index (KPI), so the new KPI in July was 3.18 %, 0.13 pp higher than the previous month’s level.
Variable‑rate loans are based on the Bank of Korea’s published KPI; at the time of adjustment, existing rates can be maintained. Therefore, even within the same variable rate category, the effective date differs by funding source: new loans quickly reflect a revised KPI, while existing loans adjust gradually in line with the adjustment day.
Fixed‑rate and hybrid short‑term loan rates follow market rates similar to those of government bonds; these rates can be influenced from just before the policy‑rate announcement. In July, the fixed‑rate average was 31.9 % lower than the previous month, while for variable rate it differed by 0.41 pp.
The Bank of Korea’s total outlook projects a six‑month policy‑rate forecast of 3.25 %, which is 0.25 pp higher than the current policy rate. This figure should be interpreted as a conditional expectation from the bank’s policy committee rather than a definitive policy direction.
Loan rates vary with the policy rate, KPI, government bond rates, and the effective date for each funding source; the Bank of Korea will announce the August KPI. Through such adjustments, the domestic loan market is responding sensitively to inflationary pressures and financial stability concerns.