Bank of Korea keeps rates steady at 3.5% for 2nd consecutive meeting

Finance

Published: 11 Apr. 2023, 09:50 Updated: 11 Apr. 2023, 09:52

Bank of Korea keeps rates steady at 3.5% for 2nd consecutive meeting

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

The Bank of Korea kept the policy rate unchanged Tuesday for the second time in a row, holding it at 3.50 percent.

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

More than 80 percent of respondents to the survey projected the central bank to keep the rate unchanged, citing rising expectations for the Federal Reserve to slow the pace of the rate increases amid banking collapses. Fifteen percent projected a 25 basis points increase, 1 percent 50 basis points and 1 percent 75 basis points.

The survey involved one hundred people covering bonds, including analysts and brokers.

The Federal Reserve slowed the rate increase to 25 basis points in March and February, following four consecutive 75 basis points increase from June through November.

Fed Chair Jerome Powell said in February that inflation is starting to ease, but he remained strong in his will to tame consumer prices.

“Inflation remains too high, and the labor market continues to be very tight,” Powell said at the post-meeting press conference last month. “We remain strongly committed to bringing inflation back down to our 2 percent goal.”

The U.S. Consumer Price Index (CPI) rose 6.0 percent in February on year, down from 6.4 percent a month earlier.

“Externally, uncertainties about the Fed’s terminal rate level have been reduced and expectations for the halt of monetary tightening is rising,” Chae Hyun-ki, an analyst at Heungkuk Securities, wrote in a report Monday. “Internally, concerns for economic slowdown, including exports, and the slowing inflation have been confirmed.”

Korea’s exports fell for the sixth consecutive month in March mainly due to a weak semiconductor market.

“Under the assumption the Fed’s terminal rate is 5.25 percent or below, the Bank of Korea’s Monetary Policy Board is highly likely to keep the rate unchanged and start to cut rate in the year end,” Chae added.

Korea’s inflation fell to 4.2 percent in March from 4.8 percent in February. Inflation expectations in March were 3.9 percent, the first fall since December.

“The possibility of inflation falling to the low 2-percent range by year end is bleak, but it’s time to monitor the ripple effects of a 300 basis points jump,” said Kim Sung-soo, an analyst from Hanwha Investment & Securities in a report Monday.

He added the recent decision by the OPEC+ to cut oil output from May will also have a limited impact on prices, as the purpose of the decision is to “defend the oil price,” not trigger a price increase.

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