2024.01.1107:11:00UTC+00Bank Of Korea Holds Policy Rate Steady

The Bank of Korea decided to leave its benchmark interest rate unchanged for the eighth straight session on Thursday, but rate-setters kept the door open for policy easing amid an intensification of the real estate project financing risks.

The Monetary Policy Board, led by Governor Rhee Chang-yong, unanimously decided to maintain the key base rate at 3.50 percent. The decision marked the eighth consecutive hold.

Inflation softened to 3.2 percent in December on falling petroleum product prices. Core inflation also moderated at the end of the year, to 2.8 percent. Price growth is projected to continue its easing trend, but the pace of slowdown is forecast to moderate due to the effects of accumulated cost pressures.

The central bank forecast inflation to fluctuate at around 3 percent for some time and then gradually moderate. The bank retained its inflation outlook as inflation is seen at 2.6 percent this year.

The bank cautioned that the future path of inflation is subject to high uncertainties related to global oil prices and agricultural product prices, and also due to those linked to economic growth at home and abroad.

The BoK board expects economic growth for the year to be generally consistent with the November forecast of 2.1 percent.

"The Board, therefore, will maintain a restrictive policy stance for a sufficiently long period of time until the Board is confident that inflation will converge on the target level," the bank said.

"With inflation falling and concerns about the economy mounting, we expect the central bank to strike a more dovish tone than at previous meetings," Capital Economics' economist Gareth Leather said.

Regarding property market, the bank said housing prices shifted to a decline across all parts of the country and risks in relation to the real estate project financing heightened.

Rising default risks and the potential damage to financial markets may force the central bank to cut rates, ING economist Min Joo Kang said.

The economist expects the first rate cut in the second quarter of 2024.