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| Bank of Korea (BOK) Governor Rhee Chang-yong presides over a monetary policy board meeting at the BOK headquarters in central Seoul, Thursday. Joint Press Corps |
Key interest rate kept steady at 3.5% for 5th straight meeting
By Yi Whan-woo
The Bank of Korea (BOK) lowered its growth forecast for Korea next year to 2.2 percent, Thursday, down from a previous forecast of 2.3 percent made in May.
This is the BOK's second straight downward revision of the country's 2024 outlook, which was estimated at 2.4 percent in February.
The central bank, meanwhile, kept the key interest rate steady at 3.5 percent for the fifth straight time due to rising economic woes amid soaring household debt.
In particular, the revised outlook for next year comes as trade-reliant Korea's path to economic recovery remains bleaker due to China's real estate crisis, which has morphed into unprecedented economic problems recently.
"We revised down the growth forecast as the possibility is low of China making a quick recovery," BOK Governor Rhee Chang-yong said during a press conference.
However, the BOK kept the country's growth outlook for this year unchanged at 1.4 percent, which is the same as the outlook of the Ministry of Economy and Finance, the International Monetary Fund (IMF) and slightly lower than the OECD's prediction of 1.5 percent.
The BOK chief explained that the projected 1.4 percent growth figure is "certainly low but should not be perceived too pessimistically, considering that the global economy is undergoing a similar path this year."
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The growth forecast was announced on the sidelines of the BOK's monetary policy board meeting, where the key interest rate was kept steady at 3.5 percent for the fifth straight time.
The BOK said it considered both China's economic crisis as well as upward pressure on its base rate.
Noticeably, the pressure comes from household debt that reached an all-time high of 1,068.1 trillion won ($807 billion) in July and the weakening Korean won, which breached the 1,340 level per dollar, in recent weeks.
The BOK said it does not want exports, private spending and investments to be hobbled by its monetary policy in balancing out growth and inflation.
It added that the inflation forecast for this year remains unchanged at 3.5 percent, while the monthly inflation rate will "pick up again from August and fluctuate at around 3 percent until the end of the year."
"The board will continue to conduct monetary policy in order to stabilize consumer price inflation at the target level over the medium-term horizon as it monitors economic growth, while paying attention to financial stability," it added.
Market observers assessed the rate freeze was "made in a timely manner" for the BOK to respond after watching U.S. Federal Reserve Chairman Jerome Powell, who is likely to comment on the U.S. rate policy during the Fed-hosted summer gathering in Jackson Hole, Friday.
Meanwhile, Rhee underlined that the BOK is open to additional hikes, as he warned against an increase in mortgage loans, which led to an all-time high household debt situation in July.
"All monetary board policy members support the idea of a possible base rate at 3.75 percent," he said.
He added that the "chance will be slim" for the rate to be lowered to a range of 1 to 2 percent as in the pre-pandemic era and that home buyers should be careful with their repayment capabilities when taking out mortgage loans.
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