South Korea’s central bank retained its key interest rate for the fifth consecutive meeting and reiterated to keep the policy restrictive.
The Monetary Policy Board of the Bank of Korea, governed by Rhee Chang-yong, decided to leave its policy rate at 3.50 percent.
The policy rate has been raised by a cumulative 300 basis points since August 2021, taking it to the highest level since 2008.
“Looking ahead, the Board deems it warranted to maintain the restrictive policy stance for a considerable time and judge whether the Base Rate needs to be raised further,” the bank said.
Policymakers said domestic economic growth will gradually improve, but inflation will remain above the target level for a considerable time.
The central bank maintained its growth outlook for this year at 1.4 percent but the projection for 2024 was downgraded to 2.2 percent from 2.3 percent citing the impact of the slowdown in the Chinese economy.
Consumer price inflation is estimated to pick up again from August and fluctuate at around 3 percent until the end of the year. Inflation is seen at 3.5 percent in 2023, unchanged from the May forecast.
However, owing to accumulated cost pressures, the core inflation outlook was lifted to 3.4 percent from 3.3 percent.
The future inflation path is likely to be affected by changes in global commodity prices, weather conditions, and economic growth at home and abroad, the bank noted.
“With concerns about inflation set to recede and those about the economy likely to take centre stage, the central bank is likely to start its easing cycle at its October meeting,” Capital Economics’ economist Shivaan Tandon said.
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