BENGALURU- The Bank of Korea will keep its key interest rate at 3.50 percent on Thursday and cut it next quarter after the US Federal Reserve likely begins easing in September, according to a Reuters poll.
The benchmark rate has been at 3.50 percent since January 2023. With inflation rising 2.6 percent in July from an 11-month low of 2.4 percent in June, moving further away from the central bank’s 2 percent target, the BOK may need to see prices stabilizing before it starts to ease policy.
The Korean won which has lost over 3 percent against the dollar this year and is one of the worst-performing emerging market currencies in 2024, was also likely to prevent the BOK from leapfrogging the US Federal Reserve’s first rate cut, which is widely expected to come in September.
A strong majority of economists, 38 of 40, in the Aug. 13-19 poll forecast the central bank would keep its base rate unchanged at 3.50 percent on Aug. 22. The remaining two predicted a 25 basis point cut to 3.25 percent. Although two board members said in July they were open to rate cuts, economists cautioned such a move could exacerbate house price increases in Seoul, heightening concerns in a country with one of the world’s highest household debt-to-GDP ratios, at 104.3 percent in the first quarter.
