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MNI (TOKYO) - The Bank of Korea will consider rate cuts cautiously amid concerns over financial stability and global risk factors, noted Governor Rhee Chang-yong on Thursday, following the board's unanimous decision to hold the Base Rate unchanged at 3.50%.
The Board has now held the rate steady since January 2023, or 13 straight meetings, its longest period without change. Its decision was largely anticipated. (See MNI BOK WATCH: Rate To Hold At 3.5%, Q4 Cut In Focus)
Rhee told reporters the decision to hold the Base Rate would allow the BOK to examine inflation and growth trends along with financial stability risk factors, "and then decide on future policy directions.”
“The conditions in terms of inflation and economic developments are favourable for us to consider a rate cut at an appropriate time in the future,” he added. “However, financial stability and global risk factors remain a concern. Therefore, while maintaining a restrictive monetary-policy stance and coordinating macro-prudential policies with the government, the Board will examine the proper timing and size of rate cuts.”
But he also warned an early reduction could spur property-price appreciation and increase volatility in foreign-exchange markets, indicating the BOK would consider timing after examining upcoming events.
“We need to monitor U.S. economic growth, the potential resumption of the yen carry trade unwinding, and the impact on the domestic foreign-exchange market, through upcoming events such as the U.S. Federal Reserve’s Jackson Hole meeting this week, the Bank of Japan Governor’s parliament attendance, the newly released employment report, and the outcome of the September FOMC meeting,” he said.
Inflation had continued to slow and domestic demand recovery had been modest, he noted, adding the Bank must assess the impact of the government's real-estate measures and changes in global risk-off sentiment on financial stability.
INFLATION, GDP LOWER
The BOK also lowered its forecast for the consumer price index this year to 2.5% from its May 2.6% estimate and decreased its growth view 10 basis points to 2.4%. (See charts) The pace of recovery in consumption, the expansion of the IT sector, and economic conditions in major countries will influence future economic growth, the Bank noted in its statement.
The BOK Board next meets Oct 11.
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.