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Bank of Korea Holds Key Rate at 3.5% Amid High Inflation

Source: Bank of Korea

Seoul, South Korea - The Monetary Policy Board of the Bank of Korea kept the key interest rate at 3.50%. 

This decision was made against persistently high inflation rates and global economic instability. 

The board's hawkish approach focuses on managing complex domestic and international economic situations.

Within the domestic economy in South Korea:

  • Economic growth is modest, driven by strong exports.
  • The labor market is robust, with a notable employment increase despite a temporary unemployment rise.
  • Private consumption and construction investment are slowly improving. GDP growth is projected at 2.1% for the year, in line with the November forecast.
  • Consumer price inflation eased to 3.2 % in December, with core inflation at 2.8 %.
  • Financial and foreign exchange markets are stable, with South Korean government bond yields declining and the South Korean Won holding steady against the US dollar.

Inflation and monetary outlook:

  • Inflation is expected to continue to decline, although the pace may slow due to existing cost pressures.
  • The Board emphasizes the need for restrictive monetary policy until inflation reaches the target level.
  • Factors such as household debt growth, global oil prices, and geopolitical risks will significantly impact future monetary policy.

Sectoral and regional support:

To mitigate the impact of high-interest rates on vulnerable sectors and regional SMEs, the Board allocated KRW 9 trillion from the Bank's Intermediated Lending Support Facility for temporary financial support.

The Bank of Korea's decision to maintain the policy interest rate at 3.50 percent represents a careful balance between promoting economic growth and controlling inflation. 

The Bank's future actions will continue to be influenced by closely monitoring global and local economic developments, focusing on long-term economic stability and growth.