BOK freezes interest rate amid growing calls for cut

Bank of Korea Gov. Rhee Chang-yong bangs the gavel to open a Monetary Policy Committee meeting at the central bank in central Seoul on Thursday. [BANK OF KOREA]

 
The Bank of Korea (BOK) kept the interest rate unchanged at 3.50 percent for the 13th straight meeting on Thursday, extending the longest run of rate freezes.

 
The decision came as the U.S. Federal Reserve is widely expected to begin rate cuts in September. According to the minutes of the previous Federal Open Market Committee (FOMC) meeting last month, the “vast majority” of Fed officials are expecting to cut interest rates in the upcoming FOMC meeting if economic readings continue to “come in about as expected.”

 

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Calls for the base rate reduction have been growing in Korea amid sluggish domestic demand and inflation stabilizing within the two percent range. However, the soaring apartment prices in Seoul and surrounding regions remain a major risk for the BOK.

 
Korea’s headline inflation inched up in July to 2.6 percent compared to the same period last year, an acceleration from the previous month’s 2.4 percent, mainly driven by heavy downpours during the monsoon season and the resulting surge in agricultural product prices. Nevertheless, inflation remained below the three percent mark for the fourth consecutive month.  

 
Meanwhile, household debts rebounded in the second quarter to a record of 1,896.2 trillion won ($1.42 trillion), up 0.7 percent from the previous quarter, driven by a rapid surge of mortgage loans.

 
According to the results of a survey by the Korea Financial Investment Association (Kofia) released on Tuesday, 90 percent of bond experts, including analysts, expected the BOK’s Monetary Policy Board to hold the rate steady, compared to 99 percent ahead of the previous rate-setting meeting in July.

 
The remaining 10 percent forecast a 25-basis-point rate cut for August.

 
"With the U.S. Fed widely expected to cut its rates in September and concerns growing over slow domestic demand, the expectation for the base rate reduction has increased compared to the previous month, yet the majority of respondents still forecast the rate would be held steady due to risks regarding household debts and the real estate sector,” Kofia said.


BY SHIN HA-NEE [shin.hanee@joongang.co.kr]