Bank of Korea to hold base rate at 3.50%, may cut by end of year

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BENGALURU — The Financial institution of Korea will choose to help a quickly slowing economic system by holding its foremost rate of interest at 3.50% on Tuesday, in response to a Reuters ballot of economists that confirmed a slim majority now anticipate a 25-basis-point minimize by the top of 2023.

Policymakers on the BoK, who’ve raised charges by 300 foundation factors since August 2021, are cautious of overtightening an export-dependent economic system that’s getting ready to a recession, particularly when international development can be slowing.

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Inflation eased to a one-year low of 4.2% in March, however it’s nonetheless double the BoK’s 2% goal and never anticipated to get to that degree for at the very least one other yr.

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All however one in all 40 economists within the April 3-6 Reuters ballot anticipated no change to the three.50% base fee, already the very best since late 2008, on the April 11 assembly. Just one forecast a 25-basis-point hike to three.75%.

“The Financial institution of Korea has grow to be much less hawkish and is nearly sure to go away rates of interest unchanged,” mentioned Dave Chia, an economist at Moody’s Analytics.

“Contemplating weak consumption and excessive family debt, additional fee hikes can be devastating to lower-income earners and financial development. The latest easing of inflation is nice information, however risky oil costs nonetheless current a threat.”

BoK Governor Rhee Chang-yong informed reporters after the February financial coverage assembly that the central financial institution wouldn’t resume its fee hikes if inflation continued to reasonable.

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The danger of a chronic financial slowdown has fueled market bets that the central financial institution will minimize charges by the top of the yr. Whereas a majority of economists within the ballot anticipated the bottom fee to stay at 3.50% till the top of the third quarter, simply over half forecast at the very least one fee minimize by the top of 2023.

The BoK’s resolution to pause coverage tightening is in step with a number of different main regional central banks who’ve paused their post-pandemic tightening cycles, such because the Reserve Financial institution of Australia and the Reserve Financial institution of India.

South Korea’s economic system was anticipated to develop 1.2% in 2023 and a pair of.3% in 2024, whereas inflation was forecast to common 3.3% this yr and a pair of.0% subsequent yr.

(For different tales from the Reuters international long-term financial outlook polls package deal:)

(Reporting by Anant Chandak; Polling by Devayani Sathyan and Veronica Khongwir; Modifying by Hari Kishan, Ross Finley and Paul Simao)