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The Korea Herald
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THE INVESTOR
July 14, 2024

Finance

BOK maintains key rate at 3.5% but hints at cut

  • PUBLISHED :July 11, 2024 - 17:08
  • UPDATED :July 11, 2024 - 17:08
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Bank of Korea Gov. Rhee Chang-yong speaks at a press conference held at the central bank’s headquarters in Seoul, Thursday. (Yonhap)

The Bank of Korea kept its benchmark interest rate unchanged at 3.5 percent for the 12th consecutive time Thursday, while implicating a rate cut if the current path of disinflation continues.

The central bank has maintained the rate at 3.5 percent for over one and half years, since Jan. 13, 2023. This is the longest rate freeze ever, surpassing the previous record in 2016-2017.

All six members of the monetary policy board, excluding BOK Gov. Rhee Chang-yong, agreed on the rate freeze and two of its members suggested leaving room for a rate cut to happen within the next three months, Rhee said at a press conference held at the central bank’s headquarters in Seoul.

“With the growing conviction that the inflation will come down to the target level, a rate cut could be considered at the right time in the future,” he said.

Inflation has been losing steam in South Korea in recent months. In June, 

consumer prices rose 2.4 percent on-year, marking the lowest growth in 11 months. The figure has been on a downward trajectory, coming down from 2.7 percent in May and 2.9 percent in April, nearing the 2 percent target.

“But it is yet to prejudge when the cut will happen,” Rhee said. “The inflation slowdown must be further confirmed, as the uncertainty of the path of price growth has not been fully resolved.”

The weak value of the Korean won against the US dollar also threatens the domestic economy. With the key rate gap between Korea and the US maintained at up to 2 percentage points, the local currency has remained weak against the greenback.

Another concern for the BOK is the fluctuations in the real estate market and its effects on household debt. According to the data released by the financial authorities Wednesday, the outstanding value of household debts at local banks rose by 4.4 trillion won ($3.2 billion) last month, led by the 6.1 trillion won surge of housing loans.

“The real estate prices in the greater Seoul area were to increase gradually, but the surge has been sharper than anticipated. Close monitoring is needed as the housing prices significantly affect the rise in household debts and the stability of the financial market,” Rhee said.

Experts agree the price fluctuation in the real estate market will impact the BOK’s rate decision in the coming months.

“Real estate prices in the greater Seoul area and the soaring household debts will be the major variables that affect the timing of the rate cut," analyst Park Sang-hyun from Hi Investment & Securities said. “The BOK needs at least two to three months to confirm stability.”

Analyst Lim Jae-kyun from KB Securities weighed the rate cut to happen in November considering global political dynamics to be a variable.

“When discussing variables in the forex market, (Rhee) mentioned political 

uncertainties along with the Korea-US rate gap. The BOK will continue to remain wary against a rate cut in October, considering the US presidential election is slated for November,” Lim assessed.

“Also, with the extension of the operation hours and the participation of registered foreign institutions from July, it will be more difficult for the forex authorities to intervene in the market in case of volatility escalation.”

By Im Eun-byel (silverstar@heraldcorp.com)

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