The Bank of Korea freezes the base rate at 3.5% for three consecutive years… Economic growth rate lowered to 1.4%

The Bank of Korea froze its benchmark interest rate for the third consecutive time. The economic growth rate was lowered to 1.4%.

After holding a plenary meeting of the Monetary Policy Committee (Monetary Policy Committee) on the 25th, the Bank of Korea announced that it had “frozen the base rate at the current level (3.50%).”

This is the third consecutive freeze, following the decision to freeze the base rate at the Monetary Policy Committee meetings held in February and April. The market is likely to take it as a sign that the interest rate hike period is over.

Analysts say that the fact that the inflation rate is stabilizing as expected by the Bank of Korea is the background to the decision to freeze. In April, consumer price inflation recorded 3.7%, entering the 3% range for the first time in a year and two months.

It seems that the recent deteriorating economic situation was also taken into account. The real GDP growth rate (0.3%) in the first quarter barely turned positive due to the revitalization of private consumption, and the current account balance in March recorded a surplus for the first time in two months thanks to dividend income. In the first quarter of this year, the current account recorded a deficit for the first time in 11 years.

With this decision, the gap with the US Federal Reserve’s policy interest rate (5.00-5.25%) has been maintained at 1.75 percentage points (upper standard). At the Federal Open Market Committee (FOMC) earlier this month, when the Fed raised the base rate, the interest rate gap between Korea and the U.S. recorded the largest ever, but the fact that there was no significant impact on the flow of foreign capital outflows is also analyzed as the background for the BOK’s decision to freeze.

At the FOMC next month, attention will be paid to the Fed’s move. If the Fed steps on the ‘baby step’ (a 0.25 percentage point increase in the base rate) next month, the gap between the US and South Korea base interest rates will widen to 2%. However, according to the Chicago Mercantile Exchange (CME) FedWatch, investors in the futures market see the probability of a rate freeze in June as 70%, and interest rates are likely to be frozen.

In addition, the Bank of Korea lowered this year’s growth rate by 0.2 percentage points from the 1.6% forecast in February in the revised economic forecast announced on the same day. It is said that the economic growth is expected to be slower than expected as the economic downturn continues, such as a current account deficit in the first half of the year, and the effect of reopening Chinese economic activities is not as great as expected.

Reporter Lee Byung-hun [email protected]

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