FX.co ★ Bank Of Korea Retains Key Rate; Lifts Growth Outlook

The Bank of Korea once again held its benchmark interest rate steady on Thursday, signaling a continued hawkish approach to its future monetary policy. This decision comes as the bank raised its economic growth forecast in light of strengthening global factors and a reduction in the previously weak domestic demand.

In a unanimous decision, the Monetary Policy Board opted to maintain the Base Rate at 3.50 percent, marking the eleventh consecutive session at this level. The board deemed it prudent to keep the interest rate at its current restrictive level while monitoring both domestic and international policy conditions moving forward.

The Bank of Korea revised its economic growth projection for this year upwards from 2.1 percent to 2.5 percent. This adjustment is attributed to the positive trend in the global IT market, robust growth in the U.S. economy, and the alleviation of weak domestic demand.

Conversely, the central bank maintained its inflation forecast at 2.6 percent and its core inflation projection at 2.2 percent for the year. The bank noted that the upward pressure on inflation due to economic growth was insufficient to warrant a change in the annual forecast.

Capital Economics economist Gareth Leather suggested that the Bank of Korea implied that interest rates would not be reduced until there was a clear indication that inflation would return to its target. Leather anticipates a reduction in interest rates by 25 basis points at the final two meetings of the year in October and November, with additional easing expected in 2025.

ING economist Min Joo Kang concurred that the Bank of Korea would maintain its hawkish stance for the near term. Kang predicts the first rate cut will occur in October, conditional on confirmation that inflation has moderated to around the mid-2 percent level.