Korea: Bank of Korea holds interest rates steady in January
January 24, 2019
At its 24 January monetary policy meeting, the Bank of Korea adopted a wait-and-see approach and held the base rate steady at 1.75%, as expected by market analysts. This follows a 0.25 percentage-point hike at its last monetary policy meeting on 30 November, which was driven by high household debt growth and rising interest rates in major global economies such as the United States.
The decision was preceded by the release of GDP data on 23 January, which showed annual economic growth in the fourth quarter accelerating on the back of government stimulus spending. The Bank of Korea noted that inflation is likely to remain suppressed through 2019, after it slowed to 1.3% in December from 2.0% in November, partly due to lower oil prices and a fuel tax cut, and after core inflation moderated to 1.1% from 1.2%. The Bank consequently lowered its inflation forecast for 2019 to 1.4% from 1.7%. The year’s respective economic growth forecast was also trimmed to 2.6% from 2.7%. The above suggests the Bank of Korea is slightly less likely to pursue a more hawkish monetary policy in the short-term; guarding against speculation of a more accommodative approach, Governor Lee emphasized that the current policy is already accommodative, and that it is not the right time for a rate cut.
Looking ahead, the Bank of Korea gave little away about its future monetary policy moves but affirmed that it would continue to be motivated by ensuring economic growth, achieving target inflation of 2.0% over the medium-term, and domestic financial stability. It also stated it would pay close attention to monetary policies in other key economies, especially in the United States; the increase in household debt; and geopolitical risks. The next monetary policy meeting is scheduled for 18 April.
Korea Interest Rate Forecast
FocusEconomics Consensus Forecast panelists expect the base rate to rise and end 2019 at 1.85%. In 2020, our panelists see the policy rate ending the year at 1.9%.
Author: Edward Gardner, Economist