BOK keeps key interest rate unchanged four times running this year

The Bank of Korea maintained its key interest rate of 3.5 percent on Thursday, making its four consecutive decisions to keep it the same since this year – following the ones announced in February, April, and May. With the U.S. Federal Reserve expected to increase its policy rates this month, it is highly likely that the gap in interest rates between South Korea and the United States will grow up to two percent points for the first time.

The BOK Monetary Policy Committee decided to hold its current key rate at 3.5 percent, with all six committee members in favor in a meeting held on Thursday to discuss monetary policy. “Inflation, which has recently slowed down, is still projected to exceed the targeted level of two percent starting from August for some time. At the same time, we need to keep a close eye on major nations’ monetary policy decisions and household debt levels,” said the central bank.

The four-time freezing of the nation’s key rate leads the market to decide that austerity measures are coming to an end in effect. Experts analyze that the central bank is unlikely to further increase interest rates because higher rates could be followed by economic recession and uncertainties over household debt issues, given that the increased rates of consumer prices have slowed down to the two percent range in 21 months, decreasing pressure on prices.

If the Fed takes a baby step to raise its key rates by 0.25 percentage points, the gap in interest rates between Seoul and Washington will increase up to two percent points, which will possibly cause decreasing foreign capital and uncertainties over exchange rates. Meanwhile, the won-dollar exchange rate dropped by 14.7 to 1,274.0 won on Thursday as it was analyzed that the slowdown of U.S. price indicators relieved concerns over the Fed’s austerity measures.


abro@donga.com · facthee@donga.com