South Korea’s central bank kept interest rates at a 15-year high and maintained a balanced policy amid economic growth, according to Reuters.
Governor Rhee Chang-yong stated that for the time being, the Bank of Korea (BoK) would continue to maintain its restrictive policy at the current benchmark rate of 3.50 per cent amid steady inflation and unexpected growth figures in the first quarter.
The BoK also raised its economic growth forecast for this year to 2.5 per cent from 2.1 per cent after Asia’s fourth-largest economy grew at its fastest pace in two years in the first quarter. The bank maintained its February inflation forecast for this year at 2.6 per cent as the impact of stronger growth “was not seen big enough to alter” the forecast, Rhee stated.
Meanwhile, Ahn Jae-kyun, an analyst at Shinhan Securities, forecast a 25 basis point decline in the fourth quarter.
There is some relief in the market that the BoK maintained its inflation outlook, and given that short-term outlook among board members remains the same, expectations the BoK will start cutting rates in the second half is very much alive.
Like the rest of the world, South Korea’s central bank is closely monitoring the debate around the timing of interest rate cuts by the Federal Reserve, as any easing in the US could lead to a rate hike and change inflation dynamics.
South Korea’s inflation is on the decline as key data for April showed it fell for the first time in three months to 2.9 per cent. However, it remains above the 2% target of the Bank of Korea.
The average forecasts show that analysts believe the benchmark interest rate will remain unchanged during the third quarter. After that, experts expect a 50 basis point cut in the fourth quarter, as some pushed back the timing of the cut following the release of stronger-than-expected GDP data.
