Bank Of Korea Maintains Status Quo
South Korea’s central bank left its benchmark interest rate unchanged for the sixth straight session and maintained its restrictive policy stance as geopolitical tensions pose upside risks to inflation.
The Monetary Policy Board of the Bank of Korea, governed by Rhee Chang-yong, decided to maintain the policy rate at 3.50 percent.
The Board judged that it is appropriate to leave the interest rate unchanged at its current restrictive level for a considerable time and judge whether the rate needs to be raised further, the bank said in a statement.
Policymakers observed that inflationary pressures rose more than estimated and the timing of inflation converging on the target level is more likely to be delayed than previously forecast.
The bank forecast inflation to decline to the lower 3 percent range at the end of this year and to continue to gradually moderate in 2024. However, given the uncertainties and the Israel-Hamas conflict, inflation is likely to be above 3.5 percent this year and 2.4 percent in 2024.
Domestic economic growth is expected to improve gradually as the sluggishness in exports eases. GDP growth is projected at 1.4 percent this year.
Nonetheless, the bank cited elevated geopolitical risks and prolonged restrictive monetary policy stances in major economies as uncertainties surrounding the projection.
The BoK publishes its advance estimates for the third quarter GDP on October 26.
Despite the poor economic outlook, interest rate cuts are unlikely in the near term, Capital Economics’ economist Gareth Leather said.
The policy rate are likely to be left unchanged for the remainder of the year and throughout early 2024, but provided inflation drops back as expected, then policy easing is likely in the second quarter, the economist added.
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