SEOUL: The Bank of Korea (BoK) is holding its benchmark interest rate steady to foster stability after consumer inflation unexpectedly picking up and the won weakening to a 16-year-low as Donald Trump’s tariff campaign rattles markets and clouds the growth outlook.
The central bank kept its seven-day repurchase rate unchanged at 2.75% on Thursday.
The move was forecast by 15 of 24 economists polled by Bloomberg.
The other nine analysts forecast a quarter-percentage-point cut.
The won vacillated after the decision, as equities extended gains.
The decision to stand pat comes after the won last week slipped temporarily to a level near 1,490 to the dollar, the weakest since March 2009, raising the risk of renewed inflationary pressure stemming from costly imports.
Consumer prices advanced 2.1% in March from a year earlier, defying forecasts for a slowdown.
In its statement, the BoK said growth weakened more than expected due to the impacts of US trade policy and domestic political uncertainty.
For that reason, the bank will continue to maintain a policy direction moving toward more rate cuts.
The case for another reduction in the benchmark rate in coming months may be complicated by the approach of a national election in June that will determine the nation’s next president.
“Another cut in May is likely but the presidential election could weigh on the bank’s decision,” said An Young-jin, an economist at SK Securities.
“Given the high possibility of a change in power, it would be less politically burdensome for the bank to lower the rate after the new government takes office rather than lowering it just days in advance.”
Bloomberg economics said: “The case for easing further is strong.
“External demand is under pressure, with a broad 10% US tariff still in place.
“At home, weak confidence continues to drag on consumption and investment.
“We expect the BoK to resume its easing cycle in May, with a 25-basis-point rate cut to support the economy.”
The won remains a key factor.
Earlier this week the currency rallied to the strongest level since November after Trump floated a potential pause in auto tariffs.
Automobiles and auto-parts are among South Korea’s biggest export items to the United States, accounting for nearly half of the nation’s US$70.8bil worth of vehicle shipments last year. — Bloomberg
