Sprinkle cold water on the game… Bank of Korea freezes base rate at ‘3.5%’ for 3 years in a row

The Monetary Policy Committee (hereinafter referred to as the Monetary Policy Committee) of the Bank of Korea froze the base rate at 3.5% per annum. This is the third freeze in a row following last February and April. It is interpreted that the BOK has judged that there is no reason to pour cold water on the economy, which is already slowing down, by raising interest rates unreasonably while the path of inflation is going as expected.

The Monetary Policy Committee of the BOK held a monetary policy direction decision meeting on the 25th and froze the base rate at the current level of 3.5% per annum.

Starting with raising the base rate from 1.25% to 1.5% in April last year, the Bank of Korea raised the interest rate seven times in a row, up to 3.5% in January this year. After stopping the run of consecutive interest rate rises within 10 months in February, it was decided to freeze interest rates for the third time in a row.

Freezing the base rate is in line with market expectations.

As a result of a recent Money Today survey of 10 bond market experts, all respondents predicted a freeze in the base rate in May.

The recent slowdown in inflation was cited as the main reason. According to the Office for National Statistics, the consumer price index rose by 3.7 per cent last month compared to the same month last year. It fell to a 3% level in 14 months.

In addition, the BOK announced on the same day that the April producer price increase rate was 1.6% year on year, the lowest in 15 months. Compared to the previous month, it fell by 0.1%.

Analysts say the comment that the interest rate hike cycle in the US has effectively ended has also been the basis for the freeze.

The US Federal Reserve (Fed) previously removed the existing phrase that additional policy tightening may be appropriate in the statement released after the opening of the Federal Open Market Committee (FOMC) earlier this month and raising the policy rate by 0.25 percentage points (p). Instead, he said the degree of additional policy strengthening in the future would take into account the economic and financial situation. This is a sign of stopping conditional rate rises.

Kang Seung-won, a researcher at NH Investment & Securities, said, “In a situation where the FOMC indicated a ‘pause’ in interest rate hikes in May, the Bank of Korea will not go ahead and say, ‘We have to raise interest. faster rates than the United States.'” .

Market attention is focused on the timing of the interest rate cuts. Experts are fighting over ‘4th quarter of this year’ and ‘1st quarter of next year’.

Slowing inflation and a worsening economic slowdown are cited as key reasons for expecting a rate cut within the year.

Ahn Ye-ha, a researcher at Kiwoom Securities, said, “The US economy is expected to slow down in the fourth quarter.”

On the other hand, there are forecasts that it will be difficult for the Bank of Korea to cut interest rates within the year given that it is difficult to guarantee price stability.

Kim Seong-soo, a researcher at Hanwha Investment & Securities, said, “Inflation is slowing down, but the year-end price level will definitely be higher than the 2% target.” It seems likely that interest rate cuts will start in the first quarter of next year at the earliest.”

Meanwhile, the Bank of Korea also presented a revised economic forecast on the same day. The forecast for this year’s economic growth rate was reduced to 1.4%, down 0.2% a year from the previous 1.6%.

The forecast for consumer price inflation for this year remained unchanged at 3.5%.

[저작권자 @머니투데이, 무단전재 및 재배포 금지]