Skip to content

South Korea Keeps Rates at 3.50% as Inflation Persists.

Philip Lee, Pickool

SEOUL, South Korea - The Bank of Korea held its benchmark interest rate steady at 3.50% on Wednesday, as expected, citing high inflation and uncertainties in global markets despite an improving domestic growth outlook.

The decision to keep rates on hold follows a year-long tightening cycle aimed at curbing inflation, which remains well above the central bank's 2% target. 

Core inflation slowed to 2.4% in March, but consumer prices rose 3.1%, unchanged from the previous month.

The BOK said in a statement that although inflation is expected to continue its decelerating trend, it remains high. 

"Therefore, the board deems it appropriate to maintain the current restrictive policy stance."

The BOK said that South Korea's economy has continued to improve, and exports mainly drive it. 

It expects GDP growth this year to meet or exceed its February forecast of 2.1%, supported by a modest recovery in consumption and strong exports, particularly in the IT sector.

Governor Rhee Chang-yong said in a press conference that the board will maintain a restrictive stance "for a sufficient period" until it is confident that inflation will converge to the target. 

He added that the board will thoroughly assess various factors, including the slowdown in inflation, risks to financial stability, and the outlook for economic growth.

The BOK's decision to keep rates on hold comes amid signs of strain in financial markets.

Long-term government bond yields recently rose on shifting expectations of a U.S. rate cut, and the Korean won is weakening against a resurgent dollar. 

The bank also noted that household loans declined for a second month, and risks remain in the real estate sector. 

However, the restructuring of troubled project finance loans is proceeding orderly.