The Bank of Korea Holds Interest Rate Steady for 8th Consecutive Time... Maintains 3.50% for 1 Year (Update)

BoK Base Rate Held Steady at 3.50%
Inflation Rate in the 3% Range Still a Burden

Lee Chang-yong, Governor of the Bank of Korea (center), is presiding over the Monetary Policy Committee meeting held on the morning of the 11th at the Bank of Korea in Jung-gu, Seoul. (Photo by Bank of Korea)

The Bank of Korea has kept the base interest rate steady at 3.50% per annum. This marks the eighth consecutive time the rate has been held unchanged since February last year.

The Monetary Policy Board of the Bank of Korea announced on the morning of the 11th at 9 a.m. during a monetary policy direction meeting held at the Bank’s headquarters in Jung-gu, Seoul, that the current base rate (3.50% per annum) would remain unchanged.

The Bank of Korea has maintained the base rate for a year because the consumer price inflation rate still records in the 3% range, falling short of the Bank’s target of 2%.

At the beginning of the year, the Bank stated in its monetary and credit policy operation direction that it would continue a sufficiently long period of tightening until it is confident that this year’s inflation rate will stabilize at the target level of 2%.

The Bank expects inflation to continue slowing this year but anticipates it will only fall to the target level after the fourth quarter. It judges that geopolitical risks in the Middle East and Europe have not yet ended, and risks from climate change have increased, leaving inflationary uncertainties still present.

The fact that household debt levels remain high is also a factor sustaining the tightening stance. According to the Bank of Korea, total household loans across all financial sectors increased by 10.1 trillion won compared to a year earlier. The household debt-to-GDP ratio reached 100.8%.

The outstanding household loans in the banking sector stood at 1,095 trillion won at the end of last year, marking an all-time high. Although the increase in household debt slowed as the Bank raised the base rate, there is concern that debt may rise again due to the government’s continued easing of real estate regulations.

Yoon Seok-jin, a researcher at Hana Financial Management Research Institute, explained, "Although inflation is slowing, it still records an upward trend exceeding the target. Considering financial stability goals such as household debt risks, it is necessary to maintain the current base rate level for the time being."

Although concerns about a real estate project financing (PF) crisis triggered by Taeyoung Construction have spread in the market, the decision reflects the judgment that it is not yet time to respond by lowering interest rates. Many opinions suggest that the real estate PF issue requires proactive responses from the government and financial authorities rather than a cut in the base rate.

Kim Ji-na, a researcher at Eugene Investment & Securities, stated, "Since the real estate PF issue has not escalated into a financial system problem, there is no need for the Bank of Korea to lower the base rate earlier than other countries. On the contrary, it is necessary to consider the side effects that rate cuts could lead to increases in household debt and real estate prices."

Professor Ryu Deok-hyun of Chung-Ang University’s Department of Economics said, "The Bank of Korea is not in a position to lower the base rate because of the real estate PF issue. The timing of any rate cut will be decided considering the timing of rate cuts by the U.S. Federal Reserve."

This content was produced with the assistance of AI translation services.