MNI BOK WATCH: Rate Steady at 3.5%; Flags Further Hikes

As expected, the Bank of Korea Tuesday decided unanimously to keep its Base Rate unchanged at 3.5%, as its focus shifts to weakness in the economy amid slowing global conditions.

BOK Governor Rhee Chang-yong did not rule out a further rate hike and indicated the Bank will cautiously consider raising the policy interest rate as inflation remains high.

“The Board will operate monetary policy in a sophisticated manner while thoroughly assessing the pace of inflation slowdown, risks to the domestic and global financial sector, the U.S. Federal Reserve’s monetary policy operation, the impact of the Chinese economic recovery on the domestic economy, and the effects of accumulated Base Rate hikes,” he said in a statement. Rhee noted it was too early to say with confidence whether prices had stabilised.

The next policy-decision meeting is scheduled for May 25.

SLOWDOWN CONCERNS

South Korea's economy continues to soften thanks to a slowdown in the wider global economy and the effect of past Base Rate hikes, Rhee said.

The BOK predicts GDP growth for 2023 will decline slightly below the February forecast of 1.6%, affected by a sluggish IT sector, the governor added. He expects domestic economic growth to remain weak until the first half of the year, but this will improve gradually from the second half.

South Korea's consumer price inflation was 4.2% in March, down from 4.8% in February, continuing a decline first noted in the second half of 2022, the BOK stated. “CPI is projected to sustain its slowing trend and decline to the 3% range in the second quarter, and reach around 3% at the year-end,” the Bank added in a statement. “The Board will continue to conduct monetary policy in order to stabilise CPI at the target level over the medium-term horizon as it monitors economic growth, while paying attention to financial stability.

Inflation is projected to remain high above the target level for a considerable time despite the slowdown of the domestic economic growth rate and inflation. Uncertainties surrounding the policy decision are judged to be high.”