BOK likely to keep base rate unchanged until June: chief

South Korea’s central bank held its policy rate flat at 3.5% for a ninth straight session on Thursday as it was deemed too early for a rate cut amid slower-than-expected inflation moderation.

Bank of Korea is holding its view that it won't be easy to lower the key rate by the end of the first half of this year, Governor Rhee Chang-yong said after the bank’s monetary policy committee unanimously decided to keep the rate unchanged on Feb. 22.

“Five of the six committee members, excluding myself, expressed their views that it is best to keep the policy rate at 3.5% over the next three months,” said Rhee. “They believe that the BOK doesn’t need to be in rush for rate cuts as the inflation is still above the target of 2% and whether it cools down as expected remains uncertain,” the governor added.

“The other member said we should leave open the possibility of a rate cut to below 3.5% for the next three months,” said Rhee, adding that this measure is to prepare for sluggish domestic demand and weaker price pressure.  

As inflation is on a bumpy descent, most members of the committee believe that it is premature to discuss rate cuts, he said.

REAL ESTATE LOANS

The governor also said it is a big misconception that financial authorities are extending maturities of real estate developers’ project financing loans and that they would collapse after the April 10 parliamentary election.

“Not all developers will be able to survive (in the current project finance debt crisis), but we see they keep their debts manageable. I believe project financing debt problems should be solved through micro policies, not interest rates,” the governor said.

In recent years, BOK has learned a lesson: that when it cuts the key rate, it should be sure of the government’s macro-financial stability policy so that the lowered rate wouldn’t drive up real estate prices, Rhee said. He pledged that the BOK’s rate policy won’t cause surging property values again. 

Some Korean financial services firms have exposure to risky properties abroad such as commercial real estate, but these assets account for a very low proportion of their portfolios and won't bring systematic risk, he said.

The central bank expects the potential growth rate of Asia’s fourth-largest economy to be around 2% and will make an announcement on it in the second half of this year, Rhee noted.

“The potential growth could fall below zero if we set up the wrong policies on the aging population; we believe there is a lot of room to increase the growth rate and hope to create nationwide consensus on how to improve it through structural effort,” the governor added.

Write to Jin-gyu Kang at josep@hankyung.com

Jihyun Kim edited this article.