Bank of Korea Holds Key Rate Steady at 3.50%, Lowers 2024 Growth Outlook

Seoul - The Monetary Policy Board of the Bank of Korea (BOK) today announced its decision to maintain the Base Rate at 3.50% for the intermeeting period, amidst ongoing global economic challenges and heightened geopolitical risks. This decision marks the continuation of the bank's current restrictive policy stance, considering the elevated inflation levels, uncertainties in household debt growth, and external conditions.

According to Yonhap News Agency, there has been a reduction in concerns about further tightening by the U.S. Federal Reserve and alleviation of geopolitical risks. However, the global economic growth is expected to continue its slowdown, influenced by extended restrictive monetary policies in major countries. Despite the ongoing slowdown, inflation remains high in these countries, with core inflation decreasing at a gradual pace.

Domestically, the South Korean economy has shown modest improvement, with exports experiencing less sluggishness and favorable labor market conditions. The BOK forecasts domestic economic growth to continue improving, backed by a recovery in exports. The GDP growth for 2023 is projected to align with the August forecast of 1.4%, with an anticipated increase to 2.1% in 2024, slightly lower than the previous forecast of 2.2%.

Consumer price inflation in South Korea rose to 3.8% in October, primarily due to the increase in prices of agricultural products and energy. Core inflation, which excludes food and energy prices, fell to 3.2%. Despite these figures, the BOK projects inflation to maintain its slowing trend, influenced by reduced demand-side pressures and declining prices of global oil and agricultural products. However, the inflation forecast for 2023 and 2024 has been revised to 3.6% and 2.6%, respectively, higher than the earlier projections.

The Board highlighted the easing of risk aversion in financial and foreign exchange markets, attributed to expectations of an end to policy rate hikes by the U.S. Federal Reserve and reduced geopolitical risks. As a result, Korean Treasury bond yields and the Korean won to U.S. dollar exchange rate have significantly fallen, while stock prices have risen. Growth in household loans, primarily driven by housing-related loans, continues, although the increase in housing prices has moderated.

The BOK emphasized its commitment to conducting monetary policy aimed at stabilizing consumer price inflation at the target level over the medium-term horizon. The Board plans to maintain a restrictive policy stance until it is confident that inflation will converge on the target level. This approach includes a careful assessment of the inflation slowdown, financial stability risks, economic downside risks, growth in household debt, monetary policy operations in major countries, and developments in geopolitical risks.

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