BOK maintains base interest rate at 1.25%

Finance

Published: 24 Feb. 2022, 16:05

BOK maintains base interest rate at 1.25%

Bank of Korea Governor Lee Ju-yeol, center, speaks at a monetary policy board meeting in central Seoul on Thursday. [BOK]

The Bank of Korea kept its benchmark rate at 1.25 percent on Thursday.

The monetary policy board of the Bank of Korea announced it was holding interest rates steady due to volatility in global financial markets, citing Russia’s threat to invade Ukraine, the Covid-19 pandemic, inflation and concerns over the pace of the U.S. Federal Reserve’s rate hikes.

The board's decision was unanimous.

The central bank raised the rate by 0.25 percentage points in the previous board meeting in January, bringing it to its pre-pandemic level of 1.25 percent.

The board "decided to keep the rates steady as it had preemptively upped the base rate and decided on the need to examine the impact of the direction of monetary policy in key countries and geopolitical risks," said Bank of Korea Governor Lee Ju-yeol in an online press conference Thursday.

He added that careful adjustment of the rates will be needed since inflation is projected to continue.

“Another raise to 1.5 percent cannot be seen as monetary tightening." Lee added, saying that the bank agrees with market expectations of the key rate reaching between 1.75 percent and 2 percent by the end of the year. He dismissed concerns over stagflation, adding that growth is solid with healthy levels of exports and domestic consumption.

The Thursday meeting took place two weeks ahead of Korea’s presidential election on March 9 and a Federal Open Market Committee Meeting scheduled to take place next month.

“An additional rate hike is expected in May,” said Ahn Ye-ha, an analyst at Kiwoom Securities. “Considering the presidential election in March and the completion of Bank of Korea Governor Lee Ju-yeol’s term in March, an additional rate hike is expected in May rather than April.”

The next monetary policy committee meeting will take place in April.

Kong Dong-rak, an economist at Daishin Securities, projected the central bank would increase the rate two more times this year, in May and July. Kong cited inflation, disruption in supply chain management and an increase in oil prices.

On the same day, the central bank projected Korea’s gross domestic product (GDP) to grow by 3 percent in 2022 and 2.5 percent in 2023.

“The Korean economy is forecast to continue its sound growth supported by reopening of global economic activities and easing of domestic social distancing measures, despite increasing internal and external uncertainties,” said the bank in a statement.

The bank forecast consumer prices to rise 3.1 percent in 2022 and 2 percent in 2023.

Global supply bottlenecks and rises in energy and raw material prices are expected to push Korea’s inflation higher than last year, according to the bank. It added the current account is forecast to see a surplus of $70 billion in 2022 and $68 billion in 2023.

BY JIN MIN-JI [jin.minji@joongang.co.kr]