South Korea’s Central Bank Holds Interest Rates Steady Amid Cooling Economy and Middle East Uncertainty

#South Korea’s Central Bank Holds Interest Rates Steady Amid Cooling Economy and Middle East Uncertainty

The Bank of Korea (BOK) has decided to keep the benchmark seven-day repurchase rate unchanged at 3.50% for the sixth consecutive time, in line with expectations. Despite a recent increase in inflation, which had been cooling for months, the BOK remains unfazed.

A survey conducted by The Wall Street Journal ahead of the bank’s decision revealed that all 27 analysts predicted no change to the interest rate in October. Furthermore, these analysts anticipate the policy rate to remain unchanged until the end of 2023, with some even speculating potential rate cuts in 2024 to support economic growth and alleviate financial stress for households.

Although headline inflation experienced a second consecutive month of increase in September, primarily driven by volatile oil prices, core inflation, which excludes food and energy prices, has been on a downward trend.

Despite some recent signs of a recovery, South Korea’s economy continues to cool, with exports declining on a year-on-year basis for the 12th consecutive month in September.

The BOK predicts that the country’s gross domestic product for 2023 will grow by 1.4%, following a 2.6% expansion in 2022.

In terms of inflation, the bank expects an average of 3.5% for this year, surpassing its annual target of 2.0%, but still significantly lower than the 5.1% recorded last year.

The ongoing war between Israel and Hamas has contributed to global economic uncertainties, adding to the BOK’s cautious approach towards further tightening its monetary policy.