Bank of Korea extends rate pause, lifts inflation forecasts
SEOUL – South Korea’s central bank kept its benchmark interest rate unchanged again on Thursday as global uncertainty and resistance to higher borrowing costs outweighed concerns around sticky price pressures.
The Bank of Korea (BOK) held its key policy rate at 3.5 percent at a policy review meeting in Seoul, as expected by all 36 economists polled by Reuters.
The pause marks the seventh straight meeting at which officials have remained on the sidelines during this rate cycle, in which borrowing costs have jumped 300 basis points.
The bank also upgraded next year’s inflation forecast to 2.6 percent from 2.4 percent, while cutting its projections for economic growth to 2.1 percent from 2.2 percent seen previously.
Most economists see the BOK as having reached its peak rate, and expect it to start easing policy from the third quarter of next year as cooling inflation makes restrictive borrowing costs difficult to justify to the public.
Asia’s fourth-largest economy grew faster than expected in the third quarter thanks to improving exports, while business sentiment for December reached the highest in over a year.
The restrictive monetary policy has not yet resulted in slower inflation, however. Consumer inflation accelerated for a third month in October to 3.8 percent from a year earlier amid higher food costs, far above the BOK’s target rate of 2 percent.
“We see a high chance that this meeting is their last time making a hawkish-hold decision before shifting to dovish-hold from next year,” said Kathleen Oh, an economist at Morgan Stanley.
“The timing of the BOK’s view on its medium-term inflation stabilization is expected to dictate the timing of the BOK’s pivoting.”
The bank’s forecasts note that inflation would return to target of 2 percent by the end of next year.
Governor Rhee Chang-yong will hold a news conference at around 0210 GMT, which will be livestreamed via YouTube.
