BOK keeps rate steady as it waits for proof of steadily easing inflation

Finance

Published: 22 Feb. 2024, 15:02 Updated: 22 Feb. 2024, 15:18

BOK keeps rate steady as it waits for proof of steadily easing inflation

Bank of Korea (BOK) Gov. Rhee Chang-yong speaks at a post meeting press conference held in central Seoul on Thursday. The BOK board unanimously kept the benchmark interest rate unchanged at 3.50 percent for a ninth consecutive meeting. [BOK]

The Bank of Korea (BOK) maintained the view that it will be difficult to cut the benchmark interest rate in the first half of the year as it needs more evidence confirming that inflation is on a sustainable path down to the target rate.

BOK Gov. Rhee Chang-yong made the remarks after the central bank’s Monetary Policy Board on Thursday unanimously decided to keep the rate unchanged at 3.50 percent for the ninth straight meeting.

It matched the expectations of 100 bond experts polled by the Korea Financial Investment Association who unanimously estimated the BOK board would hold the rate steady.

Five board members said it would be good to keep the rates at 3.50 percent over the next three months, citing inflation remaining above the target 2 percent, said Rhee in a post-meeting press conference held in central Seoul.

However, one member contended that the rate needs to be lowered below the current level due to weak domestic spending, which has eased inflationary pressure and raised concerns about weakened domestic consumption.

Thursday's decision came after the governor said cutting the interest rate will not be easy for at least six months or more in January's post-meeting press conference, adding that a hasty rate cut could trigger inflation expectations, which could actually push up inflation.

Korea’s consumer price index, a key gauge of inflation, hit a six-month low at 2.8 percent in January on a yearly basis, slowing from 3.2 percent a month earlier, mostly on falling oil prices.

“Although inflation has continued its slowing trend, it is judged that there are high uncertainties around the inflation outlook and it is necessary to assess the changes in domestic and external policy conditions such as monetary policies in major countries and volatility in the exchange rate, as well as geopolitical risks,” Rhee said.

“The board, therefore, sees that it is appropriate to maintain its current restrictive stance.”

He added that there is a growing chance that central banks will roll out differentiated monetary policies from the U.S. Federal Reserve, unlike last year and the year before when they inevitably had to follow the movement of the Fed amid its rapid rate increases and a jump in international oil prices.

The yield on Korea’s policy-sensitive three-year treasury bond reached 3.41 percent Thursday, up from as low as 3.15 percent at the end of December.

The BOK also kept Korea’s economic forecast for this year at 2.1 percent, unchanged from the November outlook. The figure is lower than the 2.3 percent projection made by the International Monetary Fund and the 2.2 percent by both the Organisation for Economic Co-operation and Development and Korea Development Institute.

“Exports are better than expected while domestic consumption is weaker than expected,” said Rhee. “A lot of the basic information [data] at today’s board meeting has not diverged largely from our expectations, though many changes were witnessed abroad.”

The BOK also kept its consumer price growth forecast unchanged from the previous outlook at 2.6 percent.

The Thursday’s rate decision was the first for Hwang Kun-il, who began his three-year board term on Feb. 13.

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