South Korea holds rates steady, investors eye timing of pivot

By Thomson Reuters Feb 21, 2024 | 7:02 PM

By Cynthia Kim and Jihoon Lee

SEOUL (Reuters) – South Korea’s central bank left interest rates at a 15-year high on Thursday amid signs that the weaker economy is slowing inflation, with investors zeroing in on Governor Rhee Chang-yong’s comments on the timing of a policy pivot later this year.

The Bank of Korea (BOK) held its key policy rate at 3.50% at a policy review in Seoul, keeping it unchanged for a ninth straight meeting as expected by all 38 analysts polled by Reuters.

The BOK kept its economic growth forecast for this year unchanged at 2.1% and inflation at 2.6%, it said along with the rate announcement.

South Korea’s 300 basis points of interest rate hikes have stalled economic growth in Asia’s fourth-largest economy as construction investment took a hit from higher borrowing costs even as exports continued to improve.

In a post-policy news conference, Governor Rhee is expected to join global peers such as the Federal Reserve and the Reserve Bank of Australia in pushing back against any bets on a near-term easing as inflation, while cooling, is still above the central bank’s target of 2%.

In January, Rhee warned markets against rallying on premature expectations for a rate cut and said he sees very little chance of rate cuts for the next six months with inflation still high.

Data released since then showed consumer inflation slowed to a six-month low of 2.8% in January, still far from the central bank’s target of 2% but easing for a third straight month mostly due to a fall in oil prices.

BOK board members have said the risks of acting too soon could potentially trigger a resurgence in price pressures especially due to upside risks from supply-side constraints.

The consensus from analysts is that the BOK will start cutting rates in the third quarter of this year, but that would largely depend on when the Federal Reserve starts cutting rates, analysts say.

Thursday’s rate decision was the first for board member Hwang Kun-il, who began his three-year term on Feb. 13.

Rhee holds a news conference at around 0210 GMT, which will be livestreamed via YouTube.

(Reporting by Cynthia Kim; Editing by Sam Holmes)