BOK to keep restrictive stance, review need for further rate hike

The Korea Times

The Korea Times

Finance

Wed, November 29, 2023 | 01:17

Economy

BOK to keep restrictive stance, review need for further rate hike

Posted : 2023-09-14 13:50

Updated : 2023-09-14 13:50

Containers are stacked at a port in Busan, Sept. 1. Yonhap

Korea's central bank said Thursday it will continue to maintain its current restrictive policy stance, given still high inflation, while judging whether an additional rate hike is needed.

In its monetary policy report to the parliament, the Bank of Korea (BOK) said inflation is expected to top its target level for a considerable time amid a gradual improvement in economic conditions and still higher uncertainties.

"Against this backdrop, the bank will continue its restrictive policy stance for a considerable time with a focus on stabilizing price levels and will judge whether an additional rate hike is necessary," the bank said in the report.

The BOK said it will take into consideration the pace of the slowdown in inflation, the economic downside risk, the effects of past rate hikes, household debt trend and moves in other major economies to raise interest rates.

Inflation in Asia's fourth-largest economy has been on a downward trend, with some ups and downs, after reaching a peak of 6.3 percent in July last year.

The country's consumer prices, a key gauge of inflation, rose 3.4 percent last month from a year earlier, accelerating from the 2.3 percent increase in July, marking the highest on-year rise since the 3.7 percent growth tallied in April, due to the higher prices of agricultural and manufactured goods.

The central bank's mid-term inflation target is set at 2 percent.

Given an easing of inflation and an economic slowdown, the BOK kept its key interest rate unchanged at 3.5 percent for the fifth straight time last month. The central bank delivered seven consecutive rate hikes from April 2022 to January 2023.

But the central bank assessed that it is highly uncertain that inflation will be approaching its target level given uncertainties over a rise in public service fees, pent-up demand and accumulated cost-push factors.

As to economic recovery, the central bank said a mild recovery in private spending is expected with a slowdown in exports forecast to be moderate down the road.

But shipments to China, a key trading partner, may remain weak, resulting in a delayed recovery in the country's overall exports.

The central bank expressed concerns over rising household debt. The bank said the delinquency rate on household debt is rising, with the rate for vulnerable borrowers climbing fast compared with overall borrowers. (Yonhap)