Bank of Korea ups rates a quarter point with two dissents

The Bank of Korea Gov. Rhee Chang-yong speaks at a press conference held in central Seoul on Friday following the Monetary Policy Board meeting. [NEWS1]

The Bank of Korea raised its base rate by a quarter percentage point to 3.50 percent on Friday in a widely expected move that came as some signs suggest that a change in stance could be in the offing.

Two of the seven Monetary Policy Board members – Joo Sang-yong and Shin Sung-hwan – voted to keep the rate unchanged, and in comments after the decision announcement, Gov. Rhee Chang-yong spoke of weak growth.

“Domestic growth continued to slow,” Rhee said.

He said the bank expects this year’s economic growth to be lower than the 1.7 percent it had projected in November and that it forecasts inflation to come in at 3.6 percent in 2023.

Increases in utility rates and the cost of processed foods will keep the inflation growth at 5 percent in January and February, but the rate will gradually fall from March, Rhee added.

More than 65 percent of 100 bond analysts and fund managers polled by Korea Financial Investment Association forecast the quarter percentage point increase. The decision by the central bank’s Monetary Policy Board follows a 25-basis-point increase in November.

“Exports were down by a large amount from an intensified slowdown in the IT economy with key trading countries, a slowdown in demand that grew largely following the normalization of economic activities and weakened consumption recovery as a result of rate increases,” Rhee said.

The country will likely report negative growth in the fourth quarter due to a tumble in China’s economy in December. China reported the worst exports in December since February 2020. But the economy will slightly rebound in the January-March period, the bank forecasts.

The economic slowdown “is universal globally,” Rhee said. “Korea is comparatively in a better position than other key nations on the chance of facing recession.”

The central banker brushed off concerns about the rate gap with the Fed, which has the federal funds rates in a range of 4.25 percent to 4.50 percent.

He said Korea is now in a position to be able to prioritize domestic factors, as indicators show slowing inflation and weaker wage growth in the United States and a gradual recovery in China.

“It will be too early to discuss any rate cuts until we are certain that inflation follows the path we expect in the short-to-midterm,” Rhee said.

The Bank of Korea's next policy meeting is Feb. 23rd.

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