Bank of Korea Holds Interest Rate at 3.5%, Signals Potential Cut Amid Weak Economy and Easing Inflation

The Bank of Korea left its benchmark interest rate unchanged on Thursday but it signaled a reduction in the near term as inflation continued its downward trend and the recovery in domestic economy remains weak.

The Monetary Policy Board headed by Rhee Chang Yong unanimously decided to hold the Base Rate at a 15-year high of 3.50 percent.

This was the thirteenth consecutive hold and the outcome of the meeting came in line with expectations.

Suggesting that a rate cut is now closer, the bank said it will maintain a restrictive policy stance but dropped the phrase “for a sufficient period of time” from the previous statement.

However, the bank cautioned that risks related to real estate project financing. Housing prices in Seoul and its surrounding areas increased at a faster pace as transactions volumes increased, while the downward trend in the remaining part of the country continued.

Household loans retained its growth at a high level driven by housing-related loans.
With policymakers now more confident about achieving their inflation target and domestic demand set to remain weak, the BoK will start to cut rates in October and that the easing cycle will be larger than most expect, Capital Economics’ economist Shivaan Tandon said.

ING economist said Min Joo Kang said the rate cut could come in either October or November. As the focus has shifted to financial market stability and growth, the bank will watch the US Federal Reserve’s rate decision in September and market’s reaction to it before making any decision, the economist noted.

Source: RTT NEWS
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