BOK to hold rate on Tuesday as inflation, growth ease

South Korea’s central bank was widely expected to leave its policy interest rate unchanged this week as inflation slows amid fears of a recession in Asia’s fourth-largest economy.

The Bank of Korea was forecast to hold the base interest rate at 3.50% on Tuesday for the second straight meeting, a survey of 100 bond market participants showed on April 7. Some 83% of respondents bet on a freeze, while the rest expected a 25-basis-point hike, according to the poll.

“Inflation is the most important factor in interest rate hikes,” said Cho Young-moo, a researcher at the LG Economic Research Institute. “But consumer prices in March rose 4.2% from a year earlier, their slowest pace in a year.”

The headline inflation has been slowing since last July when it soared to as high as 6.3%, the highest level since the 1997-98 Asian financial crisis. It is expected to fall to the 3% level in the second quarter of this year as the government already confirmed it was easing.

END OF TIGHTENING

Concerns about an economic recession are mounting as exports kept falling amid sluggish overseas sales of microchips, the country’s top export item. Korea is home to the world's two largest memory chipmakers Samsung Electronics Co. and SK Hynix Inc.

The global economy is also slowing, which is likely to further hit Korea's export-dependent economy. The International Monetary Fund expects global economic growth to dip below 3% in 2023 and linger around 3% for the next five years — lower than the average of 3.8% of the last two decades, IMF Managing Director Kristalina Georgieva said last week.

The BOK may stop its tightening campaign, which ramped up the policy rate by 3 percentage points over the course of 10 hikes since August 2021, some analysts said.

“If the BOK resumes an interest rate hike in May after leaving the rate unchanged in February and April, it could cause significant confusion in the market,” said Joo Won, a senior researcher at the Hyundai Research Institute. "The central bank could start cutting the policy rate in October or November.”

Write to Jin-gyu Kang at joseph@hankyung.com
 
Jongwoo Cheon edited this article.