The Bank of Korea kept its policy rate at 3 percent after increases in July and August. The unanimous decision leaves borrowing costs unchanged while the bank assesses the effects of its earlier moves. Inflation remains above target, and the board retained its approach of deciding the timing and pace of further increases according to economic and financial conditions.
Economics & Markets··Midday
The board pauses after two increases
The Bank of Korea kept its policy rate at 3 percent on October 22, following increases in July and August. Borrowing costs remained at the level reached after those consecutive increases.[1], [2]
The central bank’s seven-member board unanimously supported the decision. The decision matched market expectations. A Korea Financial Investment Association survey of 100 bond-market professionals at 53 institutions, conducted on October 12–15, found that 93 percent expected no change. Governor Shin Hyun-song had described August’s consecutive increase as an unusual step sending a strong signal to markets.[1]
Inflation remains above the target
September consumer inflation was 2.9 percent, above the bank’s 2 percent target. The board cited accumulated cost pressure passing into prices and increased demand pressure. It projected that this year’s headline and core inflation would broadly match August’s forecasts of 2.7 percent and 2.5 percent, respectively.[1]
Earlier increases and household debt stay under review
The bank highlighted the need to assess the effects of its preceding two increases alongside domestic and external risks. Exports and investment supported growth, while the consumption recovery was broadening. Housing in the capital region and household borrowing remained financial-stability concerns. The board retained its approach of setting the timing and pace of further increases according to inflation, activity and financial stability. Its final policy meeting of the year is scheduled for November 26.[1]
