BOK holds key interest rate steady for 2nd straight time as recession woes rise
This phot provided by the Bank of Korea shows Governor Lee Chang-yong chairing meeting of the Monetary Policy Committee at the Bank of Korea in central Seoul, April 11. Yonhap
Korea's central bank held its key interest rate steady for the second straight time Tuesday as inflation appears to be easing and concerns are rising over an economic slowdown.
In a widely expected decision, the monetary policy board of the Bank of Korea (BOK) kept the benchmark seven-day repo rate unchanged at 3.5 percent.
This marked the second straight time that the BOK has stood pat on monetary policy following a rate freeze in February. The pause came after the BOK had delivered seven consecutive hikes in borrowing costs since April last year.
"It is forecast that inflation will continue to be above the target level for a considerable time although it is projected to continue to slow, and uncertainties surrounding the policy decision are also judged to be high with increasing risks to the financial sector in major countries," the BOK said in a statement.
"The board, therefore, sees that it is appropriate to judge whether the base rate needs to rise further while assessing the pace of the slowdown in inflation, financial stability conditions and developments in other uncertainties," it added.
The back-to-back rate freezes are raising expectations that the BOK might be ending its long-held hawkish monetary policy stance amid signs of moderating inflation, rising economic slowdown woes and lingering fears over global banking turmoil.
Korea's consumer prices, the main gauge of inflation, rose 4.2 percent in March from a year earlier, which was the slowest on-year price rise in a year. It has been on the decline since peaking at a 24-year high of 6.3 percent in July last year.
It is still much higher than the central bank's midterm inflation target of 2 percent.
Though inflation appears to be moderating, the country's economy is showing signs of slowing down too, with exports, the country's major growth engine, sharply shrinking in the face of less demand in major markets.
Korea posted a current account deficit for the second straight month in February, which was the first of its kind in about 11 years.
Its exports also shrank for the sixth consecutive month on-year in March due mainly to weak global demand for semiconductors amid global recession worries.
BOK Governor Rhee Chang-yong, center, presides over a rate-setting meeting, April 11. Yonhap
Korea is also facing high uncertainty in the banking sector stemming from the recent collapses of Silicon Valley Bank and the global bank Credit Suisse.
In February, the BOK lowered its economic growth outlook for South Korea this year to 1.6 percent from a 1.7 percent rise predicted three months earlier.
The BOK said that economic growth will be "slightly" below the February forecast, though uncertainties regarding the outlook remain high. It is widely expected to lower the projection when it announces revisions in May.
Tuesday's freeze comes even though the rate difference with the United States is widening. Higher rates in the U.S. are feared to prompt money outflows from here, thereby weakening the local currency against the dollar and exerting upward inflation pressure by making imports more expensive.
The U.S. Federal funds rate currently stands at a range of 4.75 percent to 5 percent, with the gap with Korea's rate at up to 1.5 percentage points, the widest difference since October 2000. The Fed's next rate-setting meeting is to be held in May. (Yonhap)