'End of rate-cut stance' signaled by the Bank of Korea

Korea Economic Daily

Summary

The Bank of Korea announced that it decided to hold the base rate at an annual 2.50% unchanged for four consecutive times.
It reported that the phrase 'will continue the rate-cut stance' was deleted, suggesting the possibility of an early end to the rate-cut cycle.
It said this year's and next year's economic growth rate forecasts were raised to 1.0% and 1.8%, respectively.

High exchange-rate impact: interest rate held for the fourth consecutive time

Next year's growth rate raised to 1.8%

The Bank of Korea decided on the 27th to maintain the base rate at an annual 2.50%. The high exchange rate and concerns about rising prices hindered further rate cuts. The Bank of Korea notably deleted the phrase "will continue the rate-cut stance" from its rate decision statement, suggesting the possibility of an early end to the rate-cut cycle.

The Bank of Korea made this decision at a Monetary Policy Board meeting on the direction of monetary policy held at its headquarters on Namdaemun-ro in Seoul. After lowering the base rate from an annual 2.75% to 2.50% in May, it has held the rate unchanged for four consecutive Monetary Policy Board meetings in July, August, October and now.

Governor Lee Chang-yong explained at a press briefing that "there are concerns that the high exchange rate could lead to a significant rise in prices" as the reason for holding the rate. The Bank of Korea revised up its economic growth forecasts for this year and next to 1.0% and 1.8% from 0.9% and 1.6%, respectively. It is also interpreted that the weakened need for rate cuts to stimulate the economy supported the decision to hold.

Kang Jin-gyu reporter josep@hankyung.com