South Korea’s central bank, the Bank of Korea, decided to keep its base rate unchanged at 3.50%, marking the 12th consecutive month without a change. This decision was in line with expectations, but there is growing speculation that the bank may shift towards easing its monetary policy in the near future.
All 26 economists surveyed by The Wall Street Journal predicted that the bank would hold rates steady in July. However, some experts are forecasting a rate cut as early as August, with most expecting policy easing to begin in October or November. The central bank is likely waiting for second-quarter growth data and July inflation figures to assess the state of the South Korean economy before making any moves on interest rates.
The recent slowdown in inflation to 2.4% in June has increased pressure on the Bank of Korea to lower rates. Weak domestic demand and signs of financial strain caused by high interest rates also support the case for a rate cut to stimulate economic growth.
Despite these factors, the Bank of Korea is expected to proceed cautiously due to uncertainties surrounding the U.S. monetary policy and the high levels of household debt in South Korea. The bank predicts that the country’s economy will grow by 2.5% this year, with inflation averaging 2.6%. Economic growth is forecasted to slow to 2.1% next year, with inflation expected to ease to 2.1% as well.
Overall, the Bank of Korea’s decision to maintain the base rate reflects a balancing act between supporting economic growth and managing risks associated with changing global economic conditions.