Bank of Korea holds rate steady for fifth time as uncertainties remain

Bank of Korea Gov. Rhee Chang-yong at the Monetary Policy Board meeting held at the bank office in central Seoul on Thursday. [JOINT PRESS CORP]

The Bank of Korea (BOK) kept the rate unchanged at 3.50 percent on Thursday for a fifth consecutive time.

It was a widely expected move amid uncertainties including a troubled property market in China, rising global oil prices and growing household debt in Korea.

According to the Korea Financial Investment Association (Kofia), 92 percent of bond experts, including analysts expected the BOK’s Monetary Policy Board to keep the rate steady. The remaining 8 percent projected a quarter percentage point increase in the policy rate, up from 7 percent last month.

“Consumer prices remained in the 2 percent range for two consecutive months, but sentiment for the bond market remained steady from a month earlier due to concerns about inflation caused by a rise in global oil prices and the surge of U.S. bond yields,” Kofia said in a statement on Tuesday.

Kofia surveyed 100 people engaged in bonds from Aug. 10 through 16.

Consumer prices slid to 2.3 percent in July and 2.7 percent in June after peaking at 6.3 percent in July last year. The BOK forecasts the rate to fall below the mid-2 percent mark in the second half of 2024.

West Texas Intermediate crude traded at around $80 a barrel, up from around $70 in May.

BOK Governor Rhee Chang-yong said on Tuesday that the current rate differential between Korea and the United States, which is at a record high of 2 percentage points, is currently not concerning.

“The U.S. Federal Open Market Committee's [FOMC] rate direction in September and the reaction from the global financial market are more important than the current rate gap,” Rhee said during a parliamentary session.

The next FOMC meeting is scheduled for September 19 and 20.

Rhee also listed the speed of China’s economic recovery, household debt in Korea and the Jackson Hole Economy Symposium as factors that the Monetary Policy Board would take into consideration in its rate decision.

Korea’s household credit, which refers to credit purchases and loans to households by financial institutions, grew at its fastest pace in June since the last quarter of 2021.

“There aren’t many reasons to deviate from the current policy rate or monetary policy tone,” Hanwha Investment & Securities analyst Kim Sung-soo said in a report on Wednesday. “Since it takes time for the monetary policy's impact to kick in, it will only start becoming visible now.”

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