Bank of Korea Stands Pat for 10th Straight Time, Keeping Guard Up Against Inflation — Update

By Kwanwoo Jun

South Korea's central bank held its base rate steady for a 10th consecutive time, as widely expected, keeping its guard up against still-stubborn inflation.

The Bank of Korea's decision signals that it is in no rush to ease policy, especially at a time when expectations for the U.S. possible rate cut in June are receding after hotter-than-expected consumer inflation earlier this week.

The BOK on Friday kept its benchmark seven-day repurchase rate unchanged at 3.50%, a 15-year high set in January 2023.

All 24 economists surveyed by The Wall Street Journal ahead of the decision had forecast no rate change, with most expecting rate cuts to start in the second half of the year.

Sticky headline inflation, which hit 3.1% for a second straight month in March--well above the bank's 2% target--continues to validate its wait-and-see stance, they said.

The central bank forecasts that inflation in South Korea will ease to 2.6% in 2024 from 3.6% in 2023. Still, it cautions against rushing to ease policy.

Analysts say the Bank of Korea may have more reasons to stand pat for now, with its governor having ruled out rate cuts in the first half of this year.

The underperforming Korean won, which has slid well over 5% against the U.S. dollar so far this year and huge levels private debt may make the Bank of Korea more cautious about easing, they said. USD/KRW was little changed after the central bank opted to stand pat.

April also doesn't seem like the ideal time for a major policy change at the bank, which is due to replace two of its seven board members this month after their four-year terms come to an end.

Most analysts think the bank will delay its anticipated easing pivot until the second half of the year. Some forecast a gradual easing cycle, penciling in two quarter-percentage-point rate cuts by the end of 2024.

Capital Economics economist Gareth Leather said Friday that the South Korean central bank will be wary about cutting interest rates ahead of its U.S. counterpart.

"With inflationary pressures lingering, the currency falling sharply and expectations of a rate cut by the U.S. Federal Reserve being pushed back, the prospect of an early rate cut by the Bank of Korea has fallen sharply," he said.

Write to Kwanwoo Jun at kwanwoo.jun@wsj.com

(END) Dow Jones Newswires

April 11, 2024 21:42 ET (01:42 GMT)

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