Bank Of Korea Holds Key Rate Unchanged As Expected

The Bank of Korea decided to hold the benchmark rate unchanged at its current restrictive level for the tenth straight session on Friday, as policymakers see higher uncertainty regarding the inflation outlook.

The Monetary Policy Board, led by Governor Rhee Chang-yong, unanimously decided to maintain the key base rate at 3.50 percent.

At 3.1 percent, the consumer price inflation remained above the 2 percent target in March and also short-term inflation expectations increased to 3.2 percent.

“…it is premature to be confident that inflation will converge on the target level, as there is a high degree of uncertainty associated with the outlook for consumer price inflation,” the central bank said.

Policymakers expect core inflation to continue its trend of a slowdown consistent with the February outlook and fall to the 2 percent level by the end of the year.

On the other hand, they observed that consumer price inflation will likely lower gradually, but there are heightened uncertainties regarding the inflation outlook.

The bank retained its growth outlook for this year at 2.1 percent. The future growth path is set to be affected by monetary policies of major economies, development in the information technology industry and real estate project financing restructuring.

With inflationary pressures lingering, the currency weakening sharply and expectations of a rate cut by the US Federal Reserve being pushed back, the prospect of an early interest rate cut by the Bank of Korea has fallen sharply, Capital Economics’ economist Gareth Leather said.

The BoK will be wary about cutting interest rates before the US Fed, the economist added.