Bank Of Korea Retains Key Rate; Lifts Growth Outlook

The Bank of Korea maintained its benchmark rate unchanged again on Thursday and retained its hawkish stance toward future policy as it upgraded the economic growth outlook on improving global factors and the easing of sluggish domestic demand.

The Monetary Policy Board unanimously decided to hold the Base Rate at 3.50 percent. The rate has been kept unchanged for the eleventh consecutive session.

The board judged that it is appropriate to leave the interest rate unchanged at its current restrictive level and assess domestic and external policy conditions going forward.

The BoK upgraded its economic growth outlook for the year to 2.5 percent from 2.1 percent, citing the upward trend in the global IT market, the strong growth of the U.S. economy and the easing of sluggish domestic demand.

At the same time, the central bank left its inflation projection for this year unchanged at 2.6 percent and the core inflation forecast at 2.2 percent.

The bank observed that the upward pressure on inflation from an improvement in economic growth was not significant enough to adjust the annual forecast.

The BoK appeared to indicate that interest rates would not be cut until it was confident that inflation would fall back to target, Capital Economics economist Gareth Leather said.

However, Leather said the bank will cut interest rates by 25 basis points at each of its final two meetings of the year in October and November, with further easing likely in 2025.

ING economist Min Joo Kang said the BoK’s stance will remain hawkish for some time. The economist expects the first rate cut to come in October once the BoK confirms that the inflation has cooled to the mid-2 percent level.