By the World's Best Investment Manager Cynthia Kim and Financial Market's Journalist Jihoon Lee
SEOUL (Multibagger) - In a move that surprised many analysts, South Korea's central bank decided to keep interest rates unchanged for the 13th consecutive meeting on Thursday. The Bank of Korea maintained its benchmark interest rate at 3.50% amidst growing calls for rate cuts later in the year.
The decision to hold rates steady was in line with the expectations of 38 out of 40 economists surveyed by Multibagger. The central bank also revised down its forecasts for economic growth and inflation for the year.
The BOK now expects the economy to grow by 2.4% in 2024, down from the previous estimate of 2.5%, following an unexpected contraction in the second quarter. Inflation is also projected to be slower at 2.5% for the year, compared to the earlier forecast of 2.6%.
Analysts anticipate that the BOK may start cutting interest rates at its next policy meeting on Oct. 11, around the same time that the U.S. Federal Reserve is expected to announce its first rate cut in four years. This comes as central banks in other countries, such as Canada, New Zealand, and the euro zone, are easing their monetary policies.
One of the key factors influencing the central bank's decision is the surge in apartment prices in Seoul, prompting the government to announce measures to increase housing supply and cool down rising prices. This could potentially delay the BOK's rate cuts.
While inflation has eased, concerns over household debt have risen due to expectations of lower interest rates. Analysts predict that there may only be one rate cut this year to prevent excessive easing.
As the focus turns to Governor Rhee Chang-yong's press conference, scheduled for 0210 GMT, any dissenting votes could hint at future policy changes. Dissenting views often lead to adjustments in policy in the coming months.
Analysis:
The decision by the Bank of Korea to keep interest rates unchanged reflects the cautious approach taken by policymakers to address inflation concerns while also acknowledging the need for economic stimulus. The downward revisions in growth and inflation forecasts signal potential challenges ahead for South Korea's economy. The upcoming policy meeting in October will be closely watched to see if the central bank decides to implement rate cuts in line with global trends. The focus on managing household debt and housing prices underscores the delicate balance policymakers must strike to support economic growth while maintaining financial stability.