The BOK board decided by a majority to keep the rate unchanged, with board member Shin Sung Hwan casting the sole vote to cut the rate by 25 basis points. Several observers had expected the board to ease the rate 25 basis points amid concerns over a slower economy, and following Rhee's comments late last year following the board's second consecutive reduction that pointed to further easing ahead. (See MNI BOK WATCH: Board To Cut Rate 25bp To Support Economy)
WON CONCERNS
Growing unease over the won drove Thursday's decision.
“While closely monitoring the domestic political situation, changes in economic policies both at home and abroad, and the resulting trends in inflation, household debt, and the exchange rate, the Board will determine the timing and pace of any further Base Rate cuts,” Rhee noted. “Inflation is expected to remain stable, supported by subdued demand pressure. However, elevated exchange rates could potentially exert upward pressure, and uncertainties have increased related to global oil prices as well as to economic growth at home and abroad.”
The Bank said it would monitor closely the impact of heightened exchange rate volatility on both inflation and financial stability, noting uncertainty over oil price movements, the timing and extent of public utility rate hikes, and domestic demand trends had increased.
Inflation is projected to rise to about 2% at the beginning of the year, then fall slightly and fluctuate in the high 1% range, the Bank added. After the second half, inflation will move near the target level, with core inflation expected to remain stable at slightly below the target 2% level throughout 2025, the BOK added, noting short-term inflation expectations remain at the upper 2% level.
Rhee noted the bank will consider cautiously lowering the rate again at the next Feb 25 meeting.