South Korea’s Central Bank Maintains Key Interest Rate at 3.5% for Fifth Consecutive Period Despite Economic Slowdown


The Bank of Korea (BOK) decided to keep its benchmark seven-day repo rate at 3.5 percent for the fifth consecutive time on Thursday, despite the slowing growth of the country.

This marks the fifth time that the BOK has frozen the rate since February, April, May, and July, following seven increases from April 2022 to January 2023.

The central bank noted that inflation has decelerated, but it is expected to rise again later this year, above its target level for a considerable time.

“In addition, uncertainties regarding economic conditions and monetary policy in major countries have risen. It is also necessary to closely monitor household debt trends. The board, therefore, sees that it is appropriate to maintain its current restrictive policy stance,” the BOK said in a statement.

South Korea’s economy is facing the prospect of a decline due to increasing economic risks in China, its largest trading partner, and a prolonged slump in outbound shipments.

The central bank maintained its growth outlook for the year at 1.4 percent, while noting that there are still high uncertainties over growth in the Chinese economy and its domestic impacts, growth in major economies, and the timing of a rebound in the IT sector.

South Korea’s exports have been on a steady decline since October last year, falling for the 10th consecutive month in July due to weak demand for semiconductors.

The country’s consumer price growth slowed for the sixth straight month in July to 2.3 percent, the lowest level in 25 months on the back of lower oil prices.

But the BOK predicts inflationary pressure to build up again, with inflation expected to rise to over 3 percent around the end of the year.

Rising household debt is another nagging concern for policymakers here. On the back of eased loan curbs, home prices rebounded in Seoul and other regions.

The central bank’s rate freeze also came in the face of the rate difference with the United States widening.

In July, the U.S. Federal Reserve raised its benchmark lending rate by a quarter percentage point, sending it to the highest level since 2001.

The rise increases the key rate to a range between 5.25 percent and 5.5 percent, while further widening the gap between the key rates of South Korea and the United States to an all-time high of 1.75-2.0 percentage points.

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