Bank Of Korea Halts Interest Rate Hike

South Korea’s central bank decided to hold its interest rate on Thursday, ending the tightening cycle that began 18 months ago, in order to assess the impact of past rate hikes.

The Monetary Policy Board of the Bank of Korea decided to keep the Base Rate unchanged at 3.50 percent.

The central bank has hiked its policy rate by a total 300 basis points since August 2021, taking it to the highest level since 2008.

“I don’t want today’s decision to be seen as the end of the rate hikes,” BoK Governor Rhee Chang-yong said.

The governor said previously it was ordinary to pause after raising the rate to examine the need for further increases.

“Today’s decision could be understood as returning to this usual way in the past,” Rhee said.

Citing the global economic slowdown as well as the increase in interest rates, the central bank lowered its growth outlook for 2023 to 1.6 percent from 1.7 percent.

Domestic economic growth is forecast to improve gradually from the second half of 2023 with the recovery in the Chinese economy and in the information technology industry. Nonetheless, uncertainties regarding the outlook are judged to be high.

The bank expects inflation to remain around 5 percent in February and to gradually ease owing to the base effect from the sharp rises in global oil prices last year and weakening pressure from the demand side.

Consumer price inflation is seen at 3.5 percent in 2023, revised down from 3.6 percent projected in November.

With the economy struggling badly and inflationary pressures set to ease further over the coming months, the BoK is likely to start cutting interest rates in the second half of the year, much sooner than other analysts expect, Gareth Leather, Capital Economics’ economist, said.

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