South Korea’s central bank froze its key rate for the 12th straight session Thursday amid high household debt and moderating inflation.
In a widely expected decision, the monetary policy board of the Bank of Korea (BOK) kept its policy rate unchanged at 3.5 percent.
The BOK has continued to stand pat following rate freezes since February last year after delivering seven consecutive rate hikes from April 2022 to January 2023.
The rate freeze came as household debt runs high despite an extended restrictive mode and inflationary pressure in Asia’s fourth-largest economy showing signs of easing, while the country’s economy is expected to grow faster than expected this year on the back of robust exports.
The central bank said that given the underlying uncertainties over the future path of inflation, it needs to assess whether inflation will continue its slowing trend, as well as the impacts of currency markets, housing prices and household debt on financial stability.
“Therefore, while maintaining a restricti
ve monetary policy stance for a sufficient period of time, the central bank will examine the timing of a rate cut,” the central bank said in a statement.
Household loans extended by banks in South Korea rose for the third consecutive month in June, led by a rise in mortgage loan growth, which makes the central bank remain cautious about cutting the rates.
“Housing prices in Seoul and its surrounding areas have increased at a faster pace, and the downward trend in the rest of the country has continued,” the BOK said.
BOK Gov. Rhee Chang-yong said earlier this week that the country is expected to see a gradual easing of inflation.
Consumer prices rose 2.4 percent on-year in June, the lowest level since July 2023, and the central bank is expecting inflation to fall further down the road, reaching its mid- to long-haul target rate of 2 percent by the end of this year.
The country continued to experience high inflationary pressure last year following the sharpest inflation in decades in 2022.
“Consumer price
inflation is likely to modestly decline to the lower 2 percent range, and it is judged that it could be slightly lower than the May forecast of 2.6 percent for the year,” the bank said.
The rate freeze also came as the central bank heightened its growth projection for the year.
In May, the central bank jacked up its growth estimate to 2.5 percent for the year, up from its earlier projection of 2.1 percent, but slashed the 2025 growth outlook to 2.1 percent from 2.3 percent. The bank kept its inflation outlook at 2.6 percent for the year.
South Korea’s economy grew at a higher-than-expected rate of 1.3 percent in the first quarter of the year, aided by a continued recovery in exports and a rise in construction investment.
The first-quarter expansion beat the market estimate of 0.6 percent and the 0.6 percent on-quarter expansion in the September-December period.
The reading marks the highest since the fourth quarter of 2021, when the economy expanded 1.4 percent.
Last year, the economy expanded 1.4 perce
nt, slowing from the previous year’s 2.6 percent gain and the 4.1 percent advance in 2021.
The central bank’s rate freeze followed the Federal Reserve’s decision last month to hold its benchmark lending rate steady at between 5.25 percent and 5.50 percent for the seventh consecutive time.
Amid easing inflationary pressure, the Fed is expected to start slashing the rate in September.
Source: Yonhap News Agency