Bank of Korea keeps interest rate at 3.5% annually
Inflation dropped to the 2% range… Uncertainty remains
U.S. interest rate cut expected before September… Difficult to achieve syncronization
First quarter surprisingly robust growth, reducing the grounds for interest rate cuts, ‘[Daily Economy Ha Sang-ryeol] The Bank of Korea kept its benchmark interest rate at 3.5% during the Monetary Policy Committee meeting. This marks the 11th consecutive interest rate freeze since February last year. The stance of reviewing domestic and international conditions at the current contraction level has been maintained.’,
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, Longest streak of interest rate freeze,
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, ‘The Bank of Korea held a meeting on the 23rd and decided to maintain the benchmark interest rate at 3.5% annually. The results of a survey conducted by EDaily with 10 domestic securities analysts and economic research institute researchers are consistent with the forecast that all respondents expect a freeze in interest rates.’,
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, ‘For the past 16 months since raising the interest rate from 3.25% to 3.5% in January of last year, the Bank of Korea has been observing the effects of the rate hike. This sets a record for the ‘longest streak of interest rate freeze’.’,
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, ‘The Bank of Korea continues to maintain its tightening stance while monitoring the flow of inflation. The domestic consumer price index recorded a 2.9% year-on-year increase last month, slowing down from the previous month’s 3.1%, but has been showing an inflation rate around 3% since hitting a low of 2.3% in July last year. Due to significant uncertainty in forecasts related to movements in international oil prices and agricultural commodity prices, it is difficult to consider an interest rate cut until a clear signal of falling prices appears.’,
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, ‘Underlying inflation (excluding food and energy) remains stable. Core inflation rose 2.3% year-on-year last month, continuing its deceleration trend following 2.5% in February and 2.4% in March. However, there is uncertainty as to whether the deceleration will continue as the base effect that lowered core inflation from June onwards last year disappears. Core inflation showed relatively high increases in April (3.9%) and May (3.8%), then sharply declined to 3.3% in June.’,
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, Reevaluated monetary policy from scratch?,
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, ‘Chang-Young Lee, Governor of the Bank of Korea, hinted at a ‘reexamination of monetary policy from scratch’ during a meeting with reporters in Tbilisi, Georgia, where he attended the annual meeting of the Asian Development Bank on the 2nd (local time). He stated, “It may not be exactly starting from scratch, but given the changes since April, we need to reevaluate.” indicating a reevaluation of the previous stance which left the possibility of an interest rate cut in the second half of the year. He explained that three premises have changed, including the delay in U.S. interest rate cuts, unexpected strong domestic growth, and fluctuation in the won-dollar exchange rate.’,
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, ‘The continued policy of interest rate freeze by the Federal Reserve (Fed) makes it difficult for the Bank of Korea to lower interest rates impulsively. This is due to the difficulty in achieving synchronization with the Fed’s monetary policy. The timing of the Fed’s interest rate cut was initially expected between May and June, but has been pushed back to November as positive U.S. economic indicators emerged. Now, with recent easing of employment and inflation indicators, there are predictions that a rate cut may occur in September.’,
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, ‘The unexpected robust growth in the first quarter of the domestic gross domestic product (GDP) is another factor delaying the interest rate cut. The first quarter GDP recorded a surprising 1.3% quarter-on-quarter growth, more than doubling the market expectations (0.5-0.6%). The Bank of Korea originally forecasted an annual growth rate of 2.1% for this year, but there is a high possibility of an upward revision to the mid-2% range. The weakened justification for pulling out the card for an interest rate cut is due to the lackluster growth.’,
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, ‘Global oil prices and exchange rates have stabilized recently. The geopolitical risks in the Middle East have eased, leading to West Texas Intermediate (WTI) crude oil dropping below $80 per barrel. The exchange rate, which once soared to 1,400 KRW, has now fallen to the 1,360 KRW range.’,
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