The Bank of Korea (BOK) said on Thursday that it will continue to maintain its current restrictive policy stance, given still high inflation, while judging whether an additional rate hike is needed. Inflation in the Asian nation is expected to remain above its target level for a considerable amount of time, despite a gradual improvement in economic conditions.
“Against this backdrop, the bank will continue its restrictive policy stance for a considerable time with a focus on stabilizing price levels and will judge whether an additional rate hike is necessary,” the BOK stated in its monetary policy report to the parliament.
Consumer prices in the country rose 3.4 percent last month from a year earlier, the highest on-year increase since April, due to higher prices of agricultural and manufactured goods. The central bank’s mid-term inflation target is set at 2 percent.
Given an easing of inflation and an economic slowdown, the BOK kept its key interest rate unchanged at 3.5 percent for the fifth straight time last month. The central bank delivered seven consecutive rate hikes from April 2022 to January 2023.
However, the BOK assessed that it is highly uncertain that inflation will be approaching its target level given uncertainties over a rise in public service fees, pent-up demand and accumulated cost-push factors. As to economic recovery, the central bank said a mild recovery in private spending is expected with a slowdown in exports forecast to be moderate down the road.
The central bank also expressed concerns over rising household debt, with the delinquency rate on household debt increasing, particularly for vulnerable borrowers.
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