Extending Its Rate Halt, the Bank of Korea Raises Inflation Projections

At a policy review meeting in Seoul, the Bank of Korea (BOK) maintained its key policy rate at 3.50%, as anticipated by all 36 economists surveyed by Reuters.

The pause signifies that officials have maintained a neutral stance at this rate cycle, during which borrowing costs have increased by 300 basis points, for the seventh consecutive meeting.

Additionally, the bank raised its inflation prognosis for the following year from 2.4% to 2.6%, but reduced its economic growth projection from 2.2% to 2.1%.

The majority of economists believe the BOK has reached its peak rate and anticipate that it will begin easing policy in the third quarter of the following year, as the public finds it increasingly difficult to rationalise restrictive borrowing costs due to declining inflation.

Export improvements propelled the fourth-largest economy in Asia to expand at a faster rate than anticipated in the third quarter, and December business sentiment peaked at its highest level in over a year.

Despite this, the implementation of the restrictive monetary policy has yet to decelerate inflation. Food price increases caused consumer inflation to surge for a third consecutive month in October, reaching 3.8% year-over-year, well in excess of the BOK's target rate of 2%.

"We see a strong likelihood that this is the last time they make a hawkish-hold decision before shifting to a dovish-hold stance beginning next year," said Kathleen Oh, an economist at Morgan Stanley.

"The timing of the BOK's view on its medium-term inflation stabilisation is expected to dictate the timing of the BOK's pivoting." The bank projects that inflation will revert to its target level of 2% by the conclusion of the following year.

At approximately 02:10 GMT, Governor Rhee Chang-yong will deliver a news conference that will be broadcast live on YouTube.