South Korea demonstrates its interest rate for the eighth consecutive time.

The South Korean central bank decided on Thursday to keep the main interest rate unchanged for the eighth consecutive time, amid concerns about weak economic recovery and slower-than-expected inflation moderation.

In an widely anticipated decision, the Monetary Policy Committee of the Central Bank of Korea maintained the interest rate unchanged at 3.5 percent.

This is the eighth consecutive time that the bank has frozen the interest rate, after making the same decision in February, April, May, July, August, October, and November, following seven consecutive increases from April 2022 to January 2023.

The freezing of interest rates came at a time when South Korea’s economy is showing signs of export recovery, while consumer spending remains slow amid easing inflationary pressures.

In the past year, it was expected that the economy would grow by 1.4 percent, in line with the estimates of the central bank. However, growth slowed compared to the previous year, which recorded 2.6 percent in 2022 and 4.1 percent in 2021.

It is expected that the economic growth will rebound this year to more than 2 percent, but the Korean economy is facing headwinds, such as a decline in the real estate market and weak domestic demand.

South Korean exports fell by 7.4 percent on an annual basis in 2023 due to the slow performance of the semiconductor sector, along with global economic uncertainty. However, monthly exports witnessed a 5.1 percent year-on-year growth in December for the third consecutive month, according to the South Korean news agency “Yonhap”.

Policy makers are pinning their hopes on a decline in inflation, although the pace of decline may be slower than anticipated.

The country continued to face high inflationary pressures over the past year, experiencing the most severe inflation in decades in 2022. However, inflation decreased in December for the second consecutive month, indicating a decrease in price pressure.

Consumer prices, which are a main measure of inflation, rose by 3.6 percent annually in 2023, slowing from an increase of 5.1 percent in 2022, but still significantly higher than the central bank’s target of 2 percent.

In December, consumer prices rose by 3.2 percent on an annual basis, surpassing 3 percent for the fifth consecutive month, despite a slowdown in growth for two months in a row.

The central bank also places great importance on the increasing household debt, which may weaken domestic demand. Household loans offered by Korean banks have risen for the ninth consecutive month in December, mainly driven by an increase in mortgage loans.

The freezing of the interest rate was implemented to address growing concerns regarding project financing developments, which could potentially harm financial institutions and further deplete local demand.

In recent times, the medium-sized company “Teh Young Engineering and Construction” that is burdened with heavy debts, has been engaged in discussions with its creditors to settle the debts.

The freezing also comes after the Federal Reserve’s decision last month to keep the benchmark lending rate unchanged for the third consecutive time.

The Federal Reserve maintained interest rates between 5.25 and 5.50 percent and hinted that the rate hike campaign, which began in March 2022, might be nearing its end or in its final stage.

However, the Chairman of the Federal Reserve, Jerome Powell, affirmed that the Federal Reserve is ready to raise interest rates further if deemed appropriate.