© Reuters. The emblem of the Financial institution of Korea is seen in Seoul, South Korea, November 30, 2017. REUTERS/Kim Hong-Ji/File Picture
By Cynthia Kim and Jihoon Lee
SEOUL (Reuters) -South Korea’s central financial institution saved financial coverage unchanged at its remaining coverage assembly of the yr on Thursday and signaled it might must preserve rates of interest greater for longer to go off persistent inflation dangers.
The Financial institution of Korea (BOK) held its key coverage fee at 3.50% at a coverage overview assembly in Seoul, as anticipated by all 36 economists polled by Reuters.
The pause marks the seventh straight assembly at which officers have remained on the sidelines throughout this fee cycle, wherein borrowing prices have jumped 300 foundation factors.
The financial institution additionally upgraded subsequent yr’s inflation forecast to 2.6% from 2.4%, whereas chopping its projections for financial progress to 2.1% from 2.2% seen beforehand.
Crucially, the financial institution omitted language from earlier statements saying that restrictive coverage stance might be maintained for “considerable time,” and changed that with “sufficiently long” interval.
“It means we are going to take enough time until we are sure that inflation has sufficiently converged – it could be six months but realistically I’d say it’s likely to be longer than that,” governor Rhee Chang-yong mentioned in response to a query about how lengthy charges would wish to remain excessive.
The yield on the three-year bond barely moved in response to the choice and feedback.
“That implies that officials are trying to push back any talk of rate cuts for at least six months,” mentioned Cho Yong-gu, a fixed-income analyst at Shinyoung Securities. He expects BOK fee cuts to begin from the third quarter of 2024.
Most economists see the BOK as having reached its peak fee and anticipate it to begin easing coverage from the third quarter of subsequent yr as cooling inflation makes restrictive borrowing prices troublesome to justify to the general public.
Like its U.S. and European friends, the BOK hasn’t shut the door on additional hikes and stays cautious of dangers that inflation would not ease.
However buyers in latest weeks have bolstered bets that central banks, together with the Federal Reserve, will pivot to fee cuts subsequent yr as inflation slows down.
The Reserve Financial institution of New Zealand on Wednesday left its coverage fee unchanged, following related choices by its friends within the UK, Canada, Malaysia and the European Central Financial institution.
South Korea’s financial system, Asia’s fourth-largest, grew sooner than anticipated within the third quarter because of enhancing exports, whereas enterprise sentiment for December reached the very best in over a yr.
The restrictive financial coverage has not but resulted in slower inflation, nevertheless. Shopper inflation accelerated for a 3rd month in October amid greater meals prices, far above the BOK’s goal fee of two%.
Rhee on Thursday mentioned inflation may attain simply above the BOK’s inflation goal of two% by the tip of subsequent yr or early 2025.
