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Bank of Korea Holds Base Rate Amid Inflation and Growth Challenges

Source: Bank of Korea

Why it matters: Bank of Korea's Monetary Policy Board keeps its key interest rate at 3.50% to address persistently above-target inflation.

The decision comes amid global economic momentum and domestic uncertainties that could influence future monetary policy.

The Key Points:

  • Despite better-than-expected global economic growth, the Monetary Policy Board expects a gradual slowdown due to restrictive monetary policies in major economies and a shrinking supply of bank credit.

  • U.S. dollar volatility and rising long-term Treasury yields are key international factors, influenced by the Fed's potential end-to-rate hikes and the ongoing U.S. debt ceiling negotiations.

  • Domestic growth is slowing, with GDP growth forecast at 1.4% for the year, down from the previous estimate of 1.6%. The revised forecast reflects a delayed recovery in the IT industry and the impact of China's economic recovery.

  • Consumer price inflation eased to 3.7% in April from 4.2% in March, mainly due to lower oil prices and slower increases in processed food prices. Core inflation remained unchanged at 4.0%.

The Big Picture: The Monetary Policy Board's decision to maintain its restrictive policy stance is driven by the need to stabilize consumer price inflation at the medium-term target level while managing economic growth and financial stability.

However, the Board recognizes that uncertainties surrounding this decision are high, given global economic factors, domestic economic risks, and changes in the monetary policies of major economies.