BOK Raises 2024 Growth Outlook to 2.0%... Base Rate Frozen as Case for a Cut Fades (Updated)

Base Rate Kept at 2.50%...Sixth Consecutive Freeze Since July Last Year
Exports Led by Semiconductors and Rebound in Domestic Demand Lift Growth Outlook...Real Estate and FX Markets Still Unstable
Market Expects Rates to Stay on Hold for a Considerable Period...Many Forecast a Freeze Throughout the Year

On the 26th, the Bank of Korea Monetary Policy Board kept the base rate unchanged at an annual 2.50%. The decision to hold the rate was driven by the upward revision of this year’s growth outlook to 2.0%, reflecting expectations that exports, led by semiconductors, will grow more strongly than anticipated and that domestic demand will improve moderately on the back of recovering consumer sentiment. Persistent instability in the foreign exchange and real estate markets also supported the decision to keep rates on hold.

Lee Changyong, Governor of the Bank of Korea, is striking the gavel at the plenary meeting of the Monetary Policy Board held at the Bank of Korea's main building in Jung-gu, Seoul on the 26th. Photo by the Joint Press Photographers

The Monetary Policy Board of the Bank of Korea announced that it decided to maintain the base rate at an annual 2.50% at the meeting on the direction of monetary policy held at the Bank of Korea headquarters in Jung-gu, Seoul, on this day. This marks the sixth consecutive freeze following decisions in July, August, October, and November last year and in January this year. The outcome is in line with market expectations. In a prior expert survey by The Asia Business Daily, all 15 respondents had predicted a rate freeze this month. Factors cited for keeping the rate unchanged included the assessment that the economy is more favorable than before, as inflation is stable near the 2.0% target and this year’s economic growth forecast has been revised up to 2.0%, as well as ongoing instability in the foreign exchange and real estate markets.

Risk factors that could undermine financial stability, such as the exchange rate, real estate, and household debt, remain a source of concern. According to the Korea Real Estate Board, in the third week of February (as of the 16th), apartment sale prices in Seoul rose 0.15% from the previous week. Due to the government’s strong real estate measures and President Lee Jaemyung’s message pressuring multiple-home owners, apartment prices in Gangnam-gu, Seoul, rose only 0.01%, reducing the overall rate of increase by 0.07 percentage point, but prices are still on an upward trend.

The won-dollar exchange rate closed at 1,429.4 won in the Seoul foreign exchange market the previous day based on the weekly closing price (3:30 p.m.), down 13.1 won from the previous trading day, and then edged down further in early trading on this day, moving in the mid-1,420 won range. Compared with late last year, when it climbed above 1,480 won and threatened the 1,500 won level, it has retreated significantly. However, heightened geopolitical risks and net selling of domestic stocks by foreign investors remain sources of instability, and highly volatile trading continues. From the start of this month through the previous day, the won-dollar exchange rate’s average daily trading range reached 8.4 won. This exceeds the level seen in December last year, when the rate rose to near 1,500 won (5.3 won), and in January this year, when volatility remained elevated (6.6 won).

Experts expect the current freeze phase to continue for a prolonged period. After this freeze phase, they see the direction of monetary policy as open to both further hikes and cuts. Cho Yonggu, researcher at Shinyoung Securities, said, “For the time being, it is necessary to take into account the overheated real estate market in the Seoul metropolitan area from a financial stability perspective, as well as ample liquidity in financial markets and the weak won,” adding, “With government policy responses focused on stabilizing the real estate market and the exchange rate, the base rate is likely to remain frozen for quite some time.” Han Junhee, senior researcher at the NH Financial Research Institute, likewise noted, “In the current situation, the need for additional monetary easing is limited,” and pointed out that “a cautious stance is highly likely to be maintained.”

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