BOK keeps rate unchanged, but warns hike still possible

Finance

Published: 25 May. 2023, 17:06 Updated: 25 May. 2023, 18:15

BOK keeps rate unchanged, but warns hike still possible

Bank of Korea Gov. Rhee Chang-yong speaks at the press conference held following the Monetary Policy Board meeting in central Seoul Thursday. The board kept the rate unchanged for the third time in a row, holding it at 3.50 percent. [JOINT PRESS CORP]

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

The central bank also revised down its growth forecast for this year from 1.6 percent to 1.4 percent.

The rate decision was made unanimously in line with expectations, but the central bank warned that further interest rate hikes remain possible.

“All six Monetary Policy Board members left open the possibility of taking the rate up to 3.75 percent,” Bank of Korea Gov. Rhee Chang-yong said at the press conference held at the bank’s office in central Seoul on Thursday.

Rhee took particular note of stubbornly high core inflation, uncertainties in the Federal Reserve’s monetary policy and its impact on Korea’s foreign exchange market.

Core inflation, excluding volatile food and energy prices, was 4.0 percent in April, remaining unchanged from a month earlier.

“Please do not think we won’t be able to[raise the rate],” Rhee said.

The Bank of Korea has lifted the policy rate by 300 basis points over the last year and a half to tame steep inflation.

The board members said it would be “excessive” to cut the rate within the year.

“It would be premature to mention the timing of a rate cut until there's evidence inflation is approaching the target 2 percent,” Rhee added.

Thursday's decision kept the rate difference with the U.S. policy rate at 170 basis points. The Fed delivered its 10th consecutive rate increase in May, pushing the benchmark rate to a target range of 5 percent and 5.25 percent, the highest since August 2007.

Rhee said real estate is heading towards a soft landing.

“Though the chance of a hard landing is weak, social problems may arise among vulnerable social groups.”

Rhee added that financial institutions are currently addressing the issue through policy and liquidity management to prevent social problems from spreading into a crisis.

At least three people have taken their lives over the past several months after losing lump-sum rental deposits.

Their landlords had failed to pay back the deposits as housing prices nosedived below sales prices.

The Bank of Korea revised down the country’s growth rate to 1.4 percent from the previous 1.6 percent forecast in February.

This is lower than the 1.5 percent projected by the International Monetary Fund in April and the state-run Korea Development Institute earlier this month.

“The revision can be largely attributed to delayed recovery in the IT sector and the late impact of the restart of economic activities in China,” Rhee said.

Korea’s growth is projected to improve in the second half, but uncertainties remain high, he added. The recovery period has been delayed by around a quarter from its projection.

The central bank projected inflation at 3.5 percent for this year, remaining unchanged from the February forecast. It revised down next year's forecast to 2.4 percent from the previous 2.6 percent.

The bank adjusted core inflation to 3.3 percent for this year, up 0.3 percentage points, and 2.1 percent for next year, up 0.1 percentage points.

The bank cited uncertainties in global oil prices and the increases in public utility fees.

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