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BOK Maintains Key Interest Rate at 3.5% Despite Gap with US Fed

Written: 2023-11-30 15:24:19Updated: 2023-11-30 18:42:04

BOK Maintains Key Interest Rate at 3.5% Despite Gap with US Fed

Photo : YONHAP News

Anchor: In a widely expected decision, the Bank of Korea held its key interest rate steady. Still, the central bank cut its growth outlook for 2024 in the face of belt-tightening measures in major economies and ongoing geopolitical concerns.
Kim Bum-soo explains.

Report:

[Sound bite: Bank of Korea Monetary Policy Committee meeting (Nov. 30)]

The central bank has kept the key interest rate steady at three-point-five percent for the seventh consecutive time.

The decision came during the year's eighth and final rate-setting session of the Bank of Korea's(BOK) monetary policy board on Thursday.

The South Korean central bank is facing the largest-ever two-percentage-point rate gap with the U.S. Federal Reserve. Pressure for a rate hike, however, has scaled back with key Fed officials hinting at a possible first rate cut, according to BOK Governor Rhee Chang-yong. 

[Sound bite: BOK Governor Rhee Chang-yong (Korean-English)]
"Today, the Monetary Policy Board announced that although the inflation rate has risen higher than initially expected, the overall easing of consumer prices is expected to continue. It’s necessary to monitor the increase in household debt, as well as external issues related to the impact of the U.S. Federal Reserve’s prolonged high interest rates and geopolitical risks. Considering the high level of uncertainty in the situation, it was appropriate to maintain the key interest rate at the current level. The decision was unanimous among all members of the board."

Following eight post-pandemic hikes amounting to three percentage points through January of this year, the board has left the rate untouched at three-point-five percent since its February session.  

[Sound bite: BOK Governor Rhee Chang-yong (Korean-English)]
"First, looking at changes in external conditions since October’s Monetary Policy Board meeting, concerns about additional monetary tightening by the Fed and geopolitical risks have eased. However, growth is expected to continue slowing due to the impact of the prolonged monetary tightening policies of major economies. Looking at those countries, the U.S. is continuing to perform better than expected, while growth is expected to slow down gradually due to persistent high interest rates."  

While maintaining its growth outlook for the year at one-point-four percent, the central bank revised down the forecast for next year by a tenth of a percentage point to two-point-one percent.

Local experts believe that the Bank of Korea will consider a rate cut in the second half of next year following the Fed's "pivot" policy.
Kim Bum-soo, KBS World Radio News.

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