"3.50% Again... Bank of Korea Holds Interest Rate Steady for 9th Consecutive Time (Update)"

Base Rate Held Steady at 3.50% by February Monetary Policy Board
Variables Include Inflation, Household Debt, and US Pivot
Expectations for Rate Cut Gradually Delayed

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

The Monetary Policy Board (MPB) of the Bank of Korea announced on the 22nd at 9 a.m. during a monetary policy meeting held at the Bank's headquarters in Jung-gu, Seoul, that the current base rate (3.50% per annum) would remain unchanged.

The reason the Bank of Korea decided to hold the base rate steady again, following February, April, May, July, August, October, November of last year, and last month, is that the inflation rate has not yet sufficiently fallen to the target level (2%). The inflation rate stayed in the 3% range for five consecutive months until December last year (3.2%) and dropped to the 2% range last month; however, uncertainties remain due to variables such as international oil prices and agricultural product prices. Governor Lee Chang-yong also expressed his personal view at a press conference held after the MPB meeting in January that it would be difficult to lower the base rate for more than six months going forward.

Household debt remains a problem. In January, bank household loans increased by 3.1 trillion won, mainly driven by mortgage loans. In particular, mortgage loans recorded the second-largest increase since the Bank of Korea began compiling statistics in 2004, as of January. In a situation where household loans are rising, rushing to cut interest rates could likely stimulate loan demand and expectations of rising real estate prices again. Professor Kang In-su of the Department of Economics at Sookmyung Women's University explained, "Lowering interest rates can reduce interest burdens but may induce more debt, potentially worsening the household debt problem."

Since Korea’s interest rates are significantly influenced by the movements of the United States, the situation in the U.S. must also be monitored. According to the minutes of the January Federal Open Market Committee (FOMC) released by the U.S. Federal Reserve on the 21st (local time), the committee members reaffirmed a cautious stance that the current rates should be maintained until inflation clearly slows down. Until last month, the market expected a rate cut in March, but those expectations have been pushed back, and now the first cut is anticipated around June or July.

Ultimately, analyses suggest that inflation must stabilize and the U.S. base interest rate cut must precede before Korea can lower its base rate. Professor Cho Sung-hoon of Yonsei University’s Department of Economics said, "Externally, we need to watch the timing of the U.S. base rate cut. However, unless the U.S. aggressively lowers rates, domestic inflation must be proactively controlled first to enable a rate cut."

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