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Bank of Korea Governor Rhee Chang-yong on Thursday maintained his hawkish monetary-policy stance due to persistently elevated inflation and high household debt growth, warning rates would stay restrictive for some time despite the Board's recent decision to hold the Base Rate at 3.5%.
“The inflation path is projected to be higher than previously forecast while economic growth continues to improve," Rhee noted. "Therefore, the Board will maintain a restrictive policy stance for a sufficiently long period of time until we are confident that inflation will converge on the target level.” The slowdown of inflation and a range of financial, economic, and geopolitical risks will dictate future rate moves, he said.
The BOK Board on Thursday decided unanimously to hold the Base Rate for the seventh consecutive meeting, despite concern over the weaker economy and elevated headline inflation.
“The Board will continue to conduct monetary policy in order to stabilise consumer price inflation at the target level over the medium-term horizon as it monitors economic growth, while paying attention to financial stability,” the bank noted in a statement.
INFLATION OUTLOOK
The BOK expects inflation to continue to fall but warned high uncertainty existed over household debt growth and external conditions.
The bank maintained its economic growth forecast this year at 1.4%, in line with International Monetary Fund and the Organisation for Economic Cooperation and Development forecasts, but lowered its growth outlook in 2024 to 2.1% from August’s 2.2%. (See charts)
The bank said global and domestic restrictive monetary policy, the pace of consumption recovery and geopolitical risks will weigh on the economy in 2024.
“Consumer price inflation will gradually slow to the lower- to mid-3% range in November and December this year, and to around 3% in the first half of next year,” the bank noted.
However, the BOK raised its inflation forecast this year to 3.6% from August’s 3.5% and also increased its 2024 inflation view to 2.6% from 2.4%.
The board will next meet in early 2024.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.