BOK keeps rates steady over geopolitical tensions, inflation

Finance

Published: 19 Oct. 2023, 17:37

BOK keeps rates steady over geopolitical tensions, inflation

Bank of Korea Gov. Rhee Chang-yong speaks during a press conference held at the bank’s headquarters in central Seoul on Thursday. [BOK]

The Bank of Korea (BOK) kept rates unchanged at 3.50 percent on Thursday for the sixth straight meeting.

It was a unanimous decision by the Monetary Policy Board amid increased uncertainties including the geopolitical tension in the Middle East, inflationary pressure caused by the rise in global oil prices and prolonged monetary tightening in major economies.

“Inflationary pressure has grown from our initial expectation and the chance of a delay in reaching the period when inflation converges to the target level has risen,” said the BOK Gov. Rhee Chang-yong during a press conference held at the bank’s headquarters in central Seoul on Thursday, noting the Israel-Hamas war that broke out on Oct. 7.

Rhee had projected in August that inflation would be near the target rate of 2 percent by the end of next year. The BOK estimated consumer prices to grow 3.5 percent this year and 2.4 percent next year.

“We therefore believe it is appropriate to determine the need for an additional rate hike while maintaining a restrictive tone for a considerable period.”

Rhee added the board will thoroughly review inflation, household debt, monetary policy in key countries and the development of the Israel-Hamas war in determining the future policy rate.

Five of the seven Monetary Policy Board members said the board should be open to the idea of an additional rate increase due to a projected delay in reaching the target inflation rate, according to Rhee. One of the members also noted household debt, saying the board should take pre-emptive measures before the debt growth accelerates.

Household loans extended by banks grew 4.9 trillion won ($3.6 billion) in September to 1,079.8 trillion won, slowing from 6.9 trillion won a month earlier.

“The Monetary Board members agree it is not desirable for the household debt to rise and that [household debt-to]-GDP ratio needs to decline. There will not be cases in which housing prices increase from loose monetary policy,” Rhee added.

One remaining board member, excluding Rhee, said that the board should be flexible in either raising or lowering the policy rate considering the uncertainties.

Consumer prices rose 3.7 percent in September from a year earlier, accelerating from a 3.4 percent on-month increase in August. It peaked at 6.3 percent in July last year.

“The economic growth this year is expected to be broadly in line with the August forecast of 1.4 percent,” said the BOK in a statement. “Domestic economic growth is expected to continue its modest improvement, thanks to an easing of sluggishness in exports despite a slower recovery in consumption.”

The next Monetary Policy Board meeting is scheduled to take place on Nov. 30, a month after the two-day Federal Open Market Committee meeting kicks off on Oct. 31.

The Fed kept the rates steady in the 5.25 to 5.50 percent range in the September meeting.

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