Bank of Korea signals rate cuts as inflation, growth slows By Reuters

By Cynthia Kim and Jihoon Lee

SEOUL (Reuters) – South Korea’s central bank kept interest rates unchanged on Thursday but signaled it was ready to begin easing policy as pressures on prices and growth eased, raising expectations for a rate cut to the October meeting.

The Bank of Korea kept its benchmark interest rate at 3.50 percent, a decision expected by 38 of 40 economists polled by Reuters.

However, the BOK said in its policy statement that it now needs to “examine the appropriate timing of interest rate cuts while maintaining a tight monetary policy stance.”

Economists expect the BOK to start cutting interest rates at its next policy meeting on Oct. 11, which would be around the same time the US Federal Reserve is expected to cut interest rates for the first time in four years.

The BOK also downgraded its forecasts for both growth and inflation this year.

It cut its growth forecast for 2024 to 2.4 percent from 2.5 percent previously, after Asia’s fourth-largest economy unexpectedly contracted in the second quarter. It now sees consumer inflation at 2.5% for this year, slower than the 2.6% seen previously.

South Korea’s three-year Treasury bond futures extended gains after the policy statement and were up 0.10 points at 105.97 by 0143 GMT.

The prospect of an October cut comes as global BOK punters reverse aggressive policy tightening in recent years, with central banks in Canada, New Zealand and the euro zone all on loose monetary settings.

However, rising risks to financial stability are one reason why the BOK may slow down on interest rate cuts.

“In terms of financial stability, it is critical to assess the impact of government measures on the housing market and increased market volatility as housing prices in the Seoul area continue to rise,” the bank said in a statement.

Worries about inflation have recently been replaced by concerns that household debt is rising rapidly and consumption is slowing too quickly.

Rising apartment prices in Seoul took center stage in policy talks with the government earlier this month announcing plans to boost housing supply to curb rising prices.

“Given that household debt is growing rapidly, we expect only one rate cut this year. We think the BOK will remain relatively accommodative,” said Kim Jun-yeong, an analyst at DS Investment & Securities who sees a rate reduction. the fourth trimester.

The focus is on Governor Rhee Chang-yong’s press conference at 0210 GMT, where the names of any dissenters could be announced. Divergent votes usually lead to policy changes in the coming months.