Bank of Korea extends rate pause as inflation cools

The logo of the Bank of Korea is seen in Seoul, South Korea, Nov 30, 2017. REUTERS/Kim Hong-Ji/File Photo

SEOUL  – South Korea’s central bank kept its policy interest rate unchanged for an eighth consecutive meeting on Thursday as they looked for further declines in price pressures while staying on alert for any fallout from a construction firm’s debt woes.

The Bank of Korea (BOK) held its benchmark rate at 3.5 percent at a policy review in Seoul, an outcome correctly forecast by all 38 economists polled by Reuters.

The BOK, currently at the end of its tightening cycle, is expected to move cautiously on any rate cuts as they watch the pace of monetary easing by the U.S. Federal Reserve and any money market jitters related to the country’s ongoing efforts to restructure debt-ridden companies.

READ: South Korea inflation eased for second month in December

Consumer inflation eased for a second month in December to 3.2 percent, bringing relief to policymakers worried about persistent price risks after the bank said they plan to keep their restrictive policy in place for longer.

The BOK, which has tightened rates by a total of 300 basis points in the current cycle, expects headline inflation to ease to its target of 2 percent either by the end of this year or early 2025.

Builder’s debt woes

South Korean officials have been bracing for trouble in the credit market after Taeyoung Engineering & Construction, a mid-sized builder, said it plans to restructure debt in late December, which put property debt in the construction sector back into the spotlight amid high borrowing costs.

READ: South Korea credit market resilient to builder’s debt woes, so far

Analysts expect the BOK to start cutting interest rates in the third quarter of this year, one quarter later than predicted in an October poll.

“The BOK’s hawkish bias has started to soften amid moderating price pressures,” Krystal Tan, an economist at ANZ said.

“We think its next rate move will be a cut in the third quarter of 2024 when we expect domestic inflation to settle below 3 percent on a sustained basis and the Fed to embark on an easing cycle.”

Governor Rhee Chang-yong will hold a news conference at around 0210 GMT, which will be livestreamed via YouTube.