South Korea’s central bank said Thursday it will maintain its monetary tightening mode for a considerable time as inflation hovers persistently above its target level amid an economic slowdown.
In a report submitted to the parliament, the Bank of Korea (BOK) said it will take into consideration the pace of the slowdown in inflation, the economic downside risk and moves in other major economies to raise interest rates, if any.
South Korea’s inflation has been on a downward trend, with some ups and downs, after reaching a peak of 6.3 percent in July last year.
The country’s consumer prices growth slowed for the fourth consecutive month in May.
Consumer prices, a key gauge of inflation, rose 3.3 percent on-year last month, slowing from a 3.7 percent on-year rise in April, marking the lowest level since the 3.2-percent growth tallied in October 2021.
Given an easing of inflation and an economic slowdown, the central bank held its key interest rate steady at 3.5 percent for the third straight time last month. The rate freezes came after the BOK had delivered seven consecutive hikes in borrowing costs since April last year.
The central bank also trimmed this year’s growth outlook for the economy to 1.4 percent from the earlier 1.6 percent as exports are widely expected to remain weak.
In the report, the central bank picked potential risks — inflation uncertainty, higher household debt and volatile currency rates — for its future monetary policy.
The BOK assessed that the pace of the slowdown in the country’s inflation rate is highly uncertain, and any supply shock can have a magnificent impact on inflation, and a hike in public service fees may add upward pressures.
Higher household debt is another nagging concern for the central bank’s monetary policy. Despite a series of interest rate hikes, household debt remain at higher levels, and the deleveraging of the debts can be pushed back.
The country’s currency might come under selling pressure amid an extended trade deficit trend should the Federal Reserve raise its rates again, the report said.
Source: Yonhap News Agency