S. Korea freezes policy rate at 3.5 pct for 11th time-Xinhua

S. Korea freezes policy rate at 3.5 pct for 11th time

Source: Xinhua

Editor: huaxia

2024-05-23 11:13:45

SEOUL, May 23 (Xinhua) -- South Korea's central bank on Thursday froze its policy rate for the 11th successive time amid lingering uncertainties over inflation, economic growth and household debts.

Bank of Korea (BOK) Governor Rhee Chang-yong and other monetary policymakers unanimously decided to leave the benchmark seven-day repurchase rate unchanged at 3.50 percent.

It was in line with market expectations. According to the Korea Financial Investment Association's poll of 100 fixed-income experts, 98 percent predicted the rate freeze this month.

The BOK had put the rate on hold in January, February and April this year and seven times last year after delivering policy rate hikes by 3.0 percentage points between August 2021 and January 2023.

The consecutive rate freeze came amid the remaining uncertainties such as the still high inflation, the better-than-expected economic growth and the massive household debts.

Consumer prices rose 2.9 percent in April from a year ago, falling below 3 percent in three months, but it continued to top the BOK's midterm inflation target of 2 percent.

After peaking at 6.3 percent in July 2022, the headline inflation had been on the decline and hit the bottom at 2.4 percent in July last year.

Inflationary pressure hovered in recent months on the back of the spike in agricultural products price, which surged more than 20 percent for the third straight month through April.

Volatility remained for global oil prices and the won/dollar exchange rate, affected by geopolitical risks in the Middle East and Europe.

The BOK said in a statement that although inflation has continued its slowing trend, the upside risk to inflation increased due to an improvement in economic growth and a heightened volatility of the won/dollar exchange rate.

The better-than-forecast growth of the Asian economy encouraged the central bank to delay the expected rate cuts.

Real gross domestic product (GDP), adjusted for inflation, expanded 1.3 percent in the January-March quarter from the previous quarter.

The central bank raised this year's growth outlook for the South Korean economy to 2.5 percent from 2.1 percent estimated three months earlier.

This year's growth forecast from the Organization for Economic Cooperation and Development (OECD) was revised up by 0.4 percentage points to 2.6 percent earlier this month.

The BOK noted that the domestic economic growth rate substantially exceeded expectations in the first quarter on the continued buoyancy of exports and the easing of sluggishness in consumption and construction investment.

The central bank forecast that consumption would continue its modest recovery in the second half after a slowdown in the second quarter, amid an ongoing increase in exports.

Higher borrowing costs increased the debt-servicing burden for households struggling with record-high debts that would negatively influence domestic consumer spending.

Debt owed by households to deposit-taking banks soared 5.1 trillion won (3.8 billion U.S. dollars) in April after rising 3.6 trillion won (2.7 billion dollars) for the past three months.

Concerns lingered over a broad gap between the South Korean and the U.S. interest rates.

The U.S. Federal Reserve froze its target range for the federal funds rate at 5.25-5.50 percent for the sixth successive time in early May.

Expectations shrank for the Fed's rate cuts later this year following the recent announcement of economic indicators in the United States, such as consumer prices and employment.