Bank of Korea holds base rate at 3.5% amid sticky inflation

The Bank of Korea left its base rate without change at a 15-year high of 3.5% at its May policy meeting, in line with market expectations.

This way, borrowing costs were kept on hold for the eleventh consecutive meeting amid an economy demonstrating resilience and a gradually slowing but still elevated inflation, hovering above the central bank’s 2% target.

South Korea’s economy expanded 3.4% in the first quarter of 2024, which marked the sharpest growth rate since Q4 of 2021.

This has prompted the Bank of Korea to revise up its full year 2024 growth forecast to 2.5% from 2.1% previously.

The central bank maintained its February inflation forecast for 2024 at 2.6%, since the impact from stronger growth “was not seen big enough to alter” the projection.

“Given the increasing upside risks to inflation, the BoK’s stance will remain hawkish for some time. We maintain our view that the first rate cut is likely to come in October,” analysts at ING wrote in a client note, cited by Reuters.

The South Korean Won was little changed on the day against the US Dollar, with the USD/KRW currency pair last trading at 1,363.33.