The central bank of South Korea held interest rates unchanged on Thursday while announcing that it would not resume the monetary tightening campaign it had started 18 months earlier if inflation continued on the anticipated path of moderating.
After the Bank of Korea kept its policy interest rate at 3.50%, Governor Rhee Chang-yong told reporters that it was necessary to pause and wait until the uncertainties were cleared up.
Rhee would not rule out the prospect of more hikes, but she insisted repeatedly that if annual inflation dropped toward the predicted 3% by the end of the year, no further increases would be required.
Compared to a peak annual rate of 6.3% witnessed in July, consumer prices increased by 5.2% in February.
“Just stop and wait for the fog to disperse while you are driving and your vision is obscured by dense fog,” Rhee said. It’s time to halt and wait since that is the circumstance we are in.
According to all 42 analysts surveyed by Reuters, the central bank’s decision on the policy rate was as expected.
Following the statement, stock prices increased, supported by a recovery in U.S. stock index futures. The victory was also stronger.
Rhee’s remarks, according to analyst Kong Dong-rak of Daishin Securities, appeared to be intended to alert investors that the future was unclear.
Kong added, “I believe his objective was to create a sense of tension on the possibilities for policy, discouraging investors from wagering excessively on a cut.
Additionally, the central bank modestly updated its economic projections. In contrast to its earlier projection from November, it now expects the GDP for the entire year of 2023 to increase by 1.6% over the previous year. According to the report, average consumer prices will rise 3.5% from last year by 2023. It had before projected a 3.6% increase.
The board’s monetary policy decision was the first time the policy rate has remained steady since February 24 of last year. That happened when economic growth appeared to be slowing down, primarily due to declining exports.
President Yoon Suk-yeol called a meeting of the economy ministers on Thursday and instructed them to take all necessary measures to stop the 2023 exports from declining, as was generally anticipated.
The interest rate increases throughout the tightening cycle, which started in August 2021, total 300 basis points. According to the majority of economists surveyed by Reuters, the cycle has come to an end.
The study had also indicated that the policy rate will not change in 2023.
