On Aug. 28 Korea, the Bank of Korea kept its standard interest rate unchanged for a second straight review, citing concerns over housing market risks and household debt while also flagging external economic uncertainties. Policymakers left the base rate at 3.50% for the 11th consecutive meeting, even as they upgraded their outlook for growth and inflation and signaled the possibility of future easing to counter the impact of U.S. tariffs.
The central bank signaled that while economic momentum is gradually strengthening, the buildup of household debt remains a pressing challenge. South Korea has one of the highest household debt-to-GDP ratios among major economies, and officials stressed that further monetary tightening could worsen financial vulnerabilities.
Governor Rhee Chang-Yong noted that the bank’s cautious stance is aimed at safeguarding financial stability. “We are closely monitoring risks from household debt and global uncertainties, particularly U.S. tariff policies, which could weigh on exports,” he said at a press briefing.
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Despite keeping rates steady, the BOK (Bank of Korea) revised its GDP growth forecast for 2024 upward to 2.8% from 2.6%, reflecting stronger-than-expected exports, particularly in semiconductors. Inflation expectations were also nudged higher, with consumer price growth now projected at 2.7%, slightly above the previous estimate.
Shin Sung-Hwan, known for favoring lower interest rates, made Thursday’s sole dissenting vote and called for an immediate 25 basis point cut. With the U.S. Federal Reserve inching toward a rate cut, analysts expect the BOK (Bank of Korea) to resume easing in the fourth quarter as the sputtering economic recovery reduces concerns about an uptick in inflation.
The upgrade suggests policymakers are growing more confident about South Korea’s resilience, even as trade tensions and global headwinds persist. The country had seen net exports power its growth in the April to June period to a better-than-expected showing, with GDP expanding 0.6% quarter over quarter and 0.5% from a year ago. “The external environment remains challenging,” Rhee said, “but Korea’s economic fundamentals are strong enough to withstand short-term volatility.”
One of the major risks flagged by the BOK (Bank of Korea) was the growing uncertainty around U.S. trade policies. New tariffs could hit South Korea’s export-driven economy, especially its critical technology and manufacturing sectors. Still, the central bank maintained that strong demand in semiconductors and gradual recovery in global supply chains could help buffer the impact.