By Cynthia Kim and Jihoon Lee
SEOUL (Reuters) -South Korea’s central financial institution stored rates of interest unchanged on Thursday however signalled it was prepared to begin easing coverage as worth pressures and progress eased, elevating expectations for a fee lower at its October assembly.
The Financial institution of Korea held the benchmark rate of interest at 3.50%, a call anticipated by 38 out of 40 economists surveyed by Reuters.
Nonetheless, the BOK mentioned in its coverage assertion it now wanted to “look at the right timing of fee cuts whereas sustaining a restrictive financial coverage stance.”
Economists count on the BOK to begin chopping rates of interest at its subsequent coverage assembly on Oct. 11, which might be across the similar time the U.S. Federal Reserve is extensively anticipated to ship its first fee lower in 4 years.
The BOK additionally downgraded forecasts for each progress and inflation this 12 months.
It lower 2024 progress forecast to 2.4% from 2.5% beforehand, after Asia’s fourth-largest economic system unexpectedly contracted within the second quarter. It now sees client inflation at 2.5% for this 12 months, slower than 2.6% seen beforehand.
South Korea’s three-year treasury bond futures prolonged good points after the coverage assertion and have been up 0.10 factors to 105.97 as of 0143 GMT.
The prospects of an October lower come because the BOK’s world friends unwind the aggressive coverage tightening of latest years with central banks in Canada, New Zealand and the euro zone having all loosened financial settings.
Nonetheless, rising monetary stability dangers are one purpose the BOK could go sluggish on fee cuts.
“Relating to monetary stability, it’s important to evaluate the impression of presidency measures regarding the housing market and the elevated market volatility as a result of housing costs within the Seoul space proceed to rise,” the financial institution mentioned within the assertion.
Worries about inflation have not too long ago been changed by considerations that family debt is rising quick and consumption is slowing too rapidly.
Rising condominium costs in Seoul took centre stage in coverage talks with the federal government earlier this month saying plans to extend housing provide to chill surging costs.
“Contemplating that family debt is rising quick, we count on there to be just one fee lower this 12 months. We predict the BOK will stay comparatively hawkish,” mentioned Kim Jun-yeong, an analyst at DS Funding & Securities, who sees a lower within the fourth quarter.
The main focus is on Governor Rhee Chang-yong’s press convention at 0210 GMT, the place the names of any dissenters might be introduced. Dissenting votes usually result in coverage modifications in subsequent months.