박상수
| 2023-11-30 13:35:00
(3rd LD) BOK-rate freeze
(3rd LD) BOK freezes key rate for 7th time, cuts 2024 growth outlook
(ATTN: ADDS growth estimates and BOK chief's remarks in paras 14-19, 25; CHANGES photo)
SEOUL, Nov. 30 (Yonhap) -- South Korea's central bank held its key interest rate steady for the seventh straight time Thursday as it cut its growth outlook for next year in the face of prolonged restrictive stances in major economies and ongoing geopolitical risks.
In a widely expected decision, the monetary policy board of the Bank of Korea (BOK) kept the benchmark seven-day repo rate unchanged at 3.5 percent.
This marked the seventh straight time that the BOK has stood pat following rate freezes in February, April, May, July, August and October. The rate freezes came after the BOK delivered seven consecutive rate hikes from April 2022 to January 2023.
The central bank maintained its growth estimate for the year at 1.4 percent but slashed next year's to 2.1 percent from 2.2 percent. It also jacked up the inflation forecast for next year to 2.6 percent from its earlier estimate of 2.4 percent.
"Global economic growth is projected to continue slowing, driven by a prolongation of restrictive monetary policy stances in major countries. Inflation in major countries still remains high, while continuing its slowdown, and core inflation is declining at a slow pace," the central bank said in a statement.
The growth rate will be affected by a prolongation of restrictive monetary policy stances at home and abroad, and by a slow pace of consumption recovery, the bank said.
South Korea's economy has been dogged by slumping exports and sluggish consumer spending. For the year, the central bank has expected Asia's fourth-largest economy to expand 1.4 percent, but it is still unclear whether such a forecast will be achieved in the face of a still murky economic outlook.
Weak global demand, led by China's slowing economy, and a delay in the recovery of the IT sector have been blamed for a slump in the country's outbound shipments, one of the country's growth drivers.
But recently, the country's exports have shown signs of recovering.
The country's exports rebounded for the first time in 13 months in October, driven by robust auto shipments, along with signs of an improvement in the chip sector.
Outbound shipments moved up 5.1 percent on-year to US$55 billion last month and logged a trade surplus of $1.64 billion in October, the fifth straight gain.
The economy grew 0.3 percent, 0.3 percent and 0.6 percent, respectively, in the first, second and third quarters.
Last year, the country's economy grew 2.6 percent, slowing from a 4.1 percent advance in 2021 and marking the slowest pace since 2020, when the economy contracted 0.7 percent amid the fallout from the coronavirus pandemic.
BOK Gov. Rhee Chang-yong said the growth outlook of 2.1 percent for next year is not bad compared with global peers, adding that the current base rate level is sufficiently restrictive.
The central bank forecast next year's private spending to remain flat from this year's growth at 1.9 percent, while construction investment is projected to contract 1.8 percent next year from this year's 2.7 percent gain.
Exports are expected to increase 3.3 percent next year, accelerating from this year's estimated 2.3 percent advance.
Imports are likely to climb 2.4 percent next year from this year's 0.2 percent fall.
The country's current account surplus is expected to expand to $49 billion next year from this year's $30 billion, and the unemployment rate is forecast to rise to 2.9 percent from 2.7 percent, according to the central bank.
Policymakers have also pinned hopes on easing inflation, helping the central bank take a breather in its rate hike moves.
South Korea's inflation grew at a faster pace of 3.8 percent in October, staying above 3 percent for the third consecutive month, due to higher prices of energy and farm goods.
It is the third month in a row that the annual price growth has picked up pace.
But oil prices have been stabilizing in the face of the Israel-Hamas war, possibly helping inflation ease down the road, a development that supports the central bank's rate freeze.
"Looking ahead, inflation is projected to maintain its underlying slowing trend owing to the weakening of demand-side pressures, and to declines in the prices of global oil and agricultural products," the BOK said.
The BOK chief said the central bank expects its inflation target of 2 percent to be achieved in late 2024 or early 2025 as the bank's restrictive stance may last longer than six months.
The central bank is also paying keen attention to rising household debts, which could help domestic demand weaken.
Household loans extended by banks in South Korea rose for the seventh straight month in October, led by rising home-backed loans amid high borrowing costs.
Banks' outstanding household loans reached a record high of 1,086.6 trillion won (US$833.6 billion) at end-October, up 6.8 trillion won from a month earlier, accelerating from a 4.8 trillion-won rise the previous month and marking an on-month increase for the seventh month in a row.
The BOK's rate freeze also came in the face of the rate difference with the United States widening.
Higher rates in the U.S. are feared to prompt money outflows from South Korea, thereby weakening the local currency against the dollar and exerting upward inflation pressure by making imports more expensive.
Early this month, the Fed held its benchmark lending rate steady at a 22-year high for the second consecutive time as it keeps striving to bring down inflation to its 2 percent target.
The Fed kept the rate between 5.25 and 5.50 percent, but it left open the possibility of a rate change later to achieve "maximum" employment and its inflation target.
The Fed started its aggressive campaign of rate hikes in March last year to tame inflation.
Next month, the Fed is widely expected to stand pat again.
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