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South Korea holds interest rate amid property concerns

SEOUL (Reuters) – South Korea’s central bank kept interest rates unchanged for a 13th straight meeting on Thursday, as policymakers prioritised the need to keep stubborn inflation in check even as the case for rate cuts later this year grows.

The Bank of Korea held its benchmark interest rate at 3.50% at its monetary policy review, as expected by 38 out of 40 economists surveyed by Reuters.

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

It cut 2024 growth forecast to 2.4% from 2.5% 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 2.6% seen previously.

Economists expect the BOK to start cutting interest rates at the bank’s next policy meeting on Oct. 11, around the same time the U.S. Federal Reserve is expected to deliver its first rate cut in four years.

The prospects on an October cut come as the BOK’s global peers unwind the aggressive policy tightening of recent years with central banks in Canada, New Zealand and the euro zone having all loosened monetary settings.

Rising apartment prices in Seoul took centre stage in policy talks with the government earlier this month announcing plans to increase housing supply to cool surging prices.

That’s one reason analysts think the BOK may go slow on rate cuts.

Inflation has generally cooled enough to soothe concerns over price pressure but a resurgence in household debt on the back of expectations for interest rate cuts has raised concerns about easing too soon.

“Considering that household debt is increasing fast, we expect there to be only one rate cut this year. We think the BOK will remain relatively hawkish,” said Kim Jun-yeong, an analyst at DS Investment & Securities, who sees a cut in the fourth quarter.

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


Source: Economy - investing.com

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