Bank Of Korea Keeps Rate Unchanged; Lifts Inflation Forecast

South Korea’s central bank retained its key interest rate for the seventh straight meeting and raised its inflation projections citing higher cost pressures.

The Monetary Policy Board of the Bank of Korea, governed by Rhee Chang-yong, decided to retain the key base rate at 3.50 percent.

As inflation is projected to be higher than previously forecast and economic growth continues to improve, policymakers decided to maintain a restrictive policy stance for a sufficiently long period of time.

The policy rate has been raised by a cumulative 300 basis points in the current tightening cycle that began in August 2021.

Capital Economics economist Gareth Leather said the policy rate will be left unchanged throughout the early part of next year.

However, with growth set to struggle and inflation likely to slow, policy easing is likely in the second quarter, the economist noted.

The BoK raised its inflation outlook citing the higher-than-expected cost pressures. Inflation is expected to ease to 2.6 percent next year from an estimated 3.6 percent in 2023.

In August, the bank had projected 3.5 percent inflation in 2023 and 2.4 percent next year.

The central bank said the economy is set to grow 1.4 percent this year, unchanged from the August forecast. Meanwhile, the outlook for next year was downgraded to 2.1 percent from 2.2 percent.

The bank observed that the future growth path was surrounded by high uncertainties regarding the effects of the prolongation of restrictive monetary policy stances as well as geopolitical risks.

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