The Bank of Korea (BOK) kept interest rates unchanged at 2.50% for the second consecutive time at its meeting on Thursday. The decision was made in line with expectations, taking into account housing market and household debt risks.
The bank raised its 2024 growth forecast to 0.9%, but this will still be the slowest expansion since 2020. Chairman Rhee Chang-yong said that growth would remain weak in the first half of the year, but could recover in the second half and approach its potential level. The only dissenting vote in the Board came from Shin Sung-hwan, who called for an immediate 25 basis point interest rate cut. Analysts predict that the BOK may resume easing measures in the last quarter of the year due to the impact of the Fed’s upcoming rate cut and new US tariffs. The Bank also noted that the 15% tariff imposed by the US on automobiles, smartphones, and machinery from Korea could increase pressure on foreign trade. However, Rhee signaled that further easing would be measured to avoid an excessive influx of liquidity into the housing market. The four rate cuts in the past year have fueled concerns about the rapid rise in household debt. Nevertheless, exports extended their growth for a second month in July thanks to strong chip and car sales. Markets expect the policy rate to fall to 2.0% by June 2025.
