The Bank of Korea (BOK) is likely to keep its interest rate at 3.5 percent at the October 19 meeting, following six consecutive rate freezes due to concerns over an economic slowdown and rising household debt. This would follow seven consecutive rate hikes since April of last year.
South Korea has been struggling with declining exports and weak consumer spending. In August, exports dropped 8.4 percent year-on-year, marking the eleventh consecutive month of decline. The slump is attributed to slowing global demand, particularly in China, and a delay in the recovery of the IT sector.
Domestic consumption has also been sluggish due to high interest rates and consumer inflation. In August, consumer prices increased by 3.4 percent compared to the same period last year, the highest increase since April 2022. This is still higher than the central bank’s medium target of 2 percent.
The Bank of Korea is also paying close attention to rising household debt. In August, household loans extended by banks rose by the largest amount in over two years. The U.S. Federal Reserve has signaled that borrowing costs could rise by as much as a quarter percentage point by the end of the year, which could lead to capital flight from South Korea and weaken the South Korean currency.
Shipping containers are stacked at a pier in South Korea's largest port city of Busan, 320 kilometers south of Seoul, on Sept. 1, 2023. (Yonhap)
sam@yna.co.kr
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