Bank of Korea Holds Rate Steady After Back-to-Back Hikes
South Korea’s central bank held its policy rate steady as expected after two consecutive increases, pausing its tightening as inflation eased but remained above target.
SEOUL, Oct 22 - The Bank of Korea maintained its key interest rate at 3.00% during its meeting on Thursday, despite upgrading its economic growth projections and expressing optimism about the nation's export performance. All 34 surveyed analysts had predicted this decision beforehand. While the central bank hinted at future tightening measures, it emphasized that the timing and speed of future rate hikes would depend on factors such as inflation, financial stability, and domestic economic trends.
The bank revised its growth forecasts upward for this year and next year, predicting higher rates of 3.3% and 2.9% respectively. It also noted that both headline and core inflation for the upcoming year would surpass earlier expectations. The monetary policymakers decided to pause the rate hike cycle on Thursday, allowing time to gauge external risks and the residual impacts of their consecutive hikes in July and August.
Analysts at Capital Economics, Gareth Leather, speculated that this might not be the end of the tightening cycle, and have set a target for one hike at the Bank of Korea's final meeting in November. The July and August rate increases marked the central bank's first consecutive hikes in over three years, following which Governor Shin Hyun Song advocated for a gradual approach to tightening.
However, Shin reiterated at an IMF event on October 13 that the central bank would maintain a restrictive policy until inflation aligns with its target. September's headline consumer inflation slowed to 2.9% from 3.1% in August, staying above the bank's 2% target. The surge in exports, driven by global demand for artificial intelligence, reached an all-time high of over $800 billion between January and September.
With growth anticipated to stay robust and inflation exceeding the target, median forecasts from the survey indicated that the Bank of Korea could raise its base rate to 3.25% during its November meeting, aligning with its dot plot projection. Governor Shin will address journalists via a news conference at 0210 GMT.
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