Bank of Korea keeps rate unchanged at 3.50 percent

Bank of Korea Gov. Rhee Chang-yong, center, at the Monetary Policy Board meeting held in central Seoul on Friday. [BANK OF KOREA]

The Bank of Korea kept the policy rate unchanged at 3.50 percent on Thursday.

It was the first time the central bank’s Monetary Policy Board maintained the rate at a meeting since February 2022. In the last rate-setting meeting in January, the board upped the policy rate by a quarter percentage point.

The move was widely expected, according to a survey conducted by the Korea Financial Investment Association.

Sixty-six percent of respondents to the survey projected the central bank to keep the rate unchanged, citing concerns about Korea’s household debt and the possibility of a recession. Of those that projected a rate increase, 97 percent expected a quarter percentage point rise.

The survey was conducted between Feb. 10 through 15 and included 100 people covering bonds, including analysts and brokers.

Korea’s outstanding household loans reached 1,876.0 trillion won ($1.44 trillion) at the end of December, according to the preliminary data from the Bank of Korea Tuesday.

The Thursday decision arrived two days after the Bank of Korea Gov. Rhee Chang-yong noted the need for monetary policy to focus on stabilizing inflation this year.

“Monetary policy needs to focus on stabilizing inflation this year, while policy needs to be introduced designed to respond to economic uncertainties, according to the central banker on Tuesday.

“The central bank recently focused on financial stability and the economy rather than growth, which means the rate increase has ended,” said Yun Won-tae, an analyst at SK Securities. “But the Tuesday comment is a sign telling people not to feel too relieved even if the rate is unchanged as there is a possibility that the rate may rise again.”

The biggest concern by the Bank of Korea will be the policy rate difference with the Fed, Yun added.

The federal funds rate is currently 4.50 percent to 4.75 percent. The next two-day Federal Open Market Committee meeting starts on March 21.

“The majority of local brokers believe the rate increases ended following the Monetary Policy Board meeting in January,” Oh Chang-sup, an analyst at Hyundai Motor Securities, said. “That’s because an expression the board would continue the trend of rate increase wasn’t shown, and it mentioned the possibility of a minus economic growth.”

The central banker said following the rate-setting meeting last month the chance of Korea not meeting the economic forecast of 1.7 percent this year has grown, while inflation is projected to stay at around 3.6 percent forecast.

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