Increased economic risks force Korea to keep interest rate unchanged for fifth time

South Korea’s central bank held the president’s rate steady for the fifth consecutive time yesterday amid fears of slowing growth as inflation moderated.

In a widely anticipated decision, the Central Bank of Korea’s monetary policy board kept the benchmark seven-day repo rate unchanged at 3.5 per cent.

This is the fifth consecutive time the Bank has proven the interest rate after the rate freeze in February, April, May and July. This came after the Bank of Korea raised interest rates seven times in a row from April 2022 to January 2023.

Asia’s fourth-largest economy faces the prospect of a slowdown in the face of growing economic risks in China, the country’s largest trading partner, and a prolonged decline in overseas shipments amid easing inflationary pressures, according to Yonhap news agency.

The central bank maintained its growth forecast for the year at 1.4 per cent. In May, the Bank lowered its growth forecast for Asia’s fourth largest economy to 1.4 per cent from 1.6 per cent three months ago.

South Korea’s economy grew slightly faster by 0.6 per cent in the second quarter of this year, compared with three months ago despite declining exports. In the first quarter, the economy grew 0.3 per cent after contracting 0.3 per cent.

Last year, the country’s economy grew 2.6 per cent, slowing from a 4.1 per cent advance in 2021, at its slowest pace since 2020, when the economy contracted 0.7 per cent amid the fallout from the coronavirus pandemic.
South Korea’s exports fell for the 10th consecutive month in July, mainly due to weak semiconductor demand.