Bank of Korea holds fire again on rates, trims growth forecast

By Choonsik Yoo and Jihoon Lee

SEOUL (Reuters) -South Korea’s central bank held interest rates steady for a third meeting on Thursday, as expected, after a 1-1/2-year-long tightening cycle while slightly downgrading this year’s economic growth projection.

The Bank of Korea announced its seven-member monetary policy board voted to keep its policy rate unchanged at 3.50%, without elaborating. Governor Rhee Chang-yong is due to hold a news conference soon.

The decision matched the prediction from all 40 economists surveyed by Reuters. Most of the respondents forecast the next rate change would be a cut, probably during the final quarter of this year.

It said in a statement inflation would ease at a rapid pace for a while but could still rebound toward the end of the year, while providing no indication on whether it acknowledges the market’s view that its tightening cycle is over.

“Regarding the need to raise the Base Rate further, the Board will make a judgment while thoroughly assessing the pace of the slowdown in inflation, the economic downside risks and financial stability risks, the effects of the Base Rate raises, and monetary policy changes in major countries,” it said.

The Bank of Korea started raising interest rates in August 2021 to tame inflation, well before the world’s other major central banks, and had raised them by a total of 300 basis points through January this year.

The Bank of Korea said it has cut this year’s economic growth forecast to 1.4% from 1.6% forecast in February, while keeping this year’s inflation projection unchanged at 3.5%.

Rhee had indicated on several occasions that the central bank’s growth forecast would likely be lowered.

Asia’s fourth-largest economy has cooled on sluggish exports and narrowly averted recession in the first quarter. Inflation has slowed since peaking in July last year but still stands far above the central bank’s 2% target.

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