South Korea's central bank held its benchmark interest rate at 3% on Thursday to assess earlier increases and economic uncertainty, the governor of the Bank of Korea said.
The unanimous decision followed quarter-point increases in July and August. The pause gives the central bank more time to assess how those increases affect the economy before deciding whether to raise borrowing costs again.
The governor's remarks were carried in Arirang News' Econ & Biz programme, published Oct. 22. The decision left the benchmark rate one percentage point below the upper end of the U.S. interest rate range.
The governor said uncertainty remained over the Middle East conflict, major economies' monetary and fiscal policies, and possible U.S. policy changes after the midterm elections. Domestic growth and inflation also posed risks.
“Growth and inflation risks have risen at home, but we'll wait for more data before taking action.”
The central bank indicated that growth could exceed its August forecasts of 3.3% this year and 2.9% next year. Strong semiconductor demand is expected to support exports and investment, while rising incomes help consumer spending.
“We expect growth both this year and next to come in well above our August forecast.”
The central bank expects headline inflation, covering the full range of consumer prices, to remain close to its August forecast of 2.7% this year. Its forecast for core inflation is 2.5%.
Both measures are expected to exceed earlier forecasts next year as recovering consumer spending pushes prices higher. The remarks gave no revised figures for next year's growth or inflation.
The governor also said the won remained relatively weak against a broader basket of currencies despite its recent strengthening against the dollar.
The durability of semiconductor demand remains another consideration. South Korea's export growth depends heavily on investment in artificial intelligence, raising questions about whether that spending can continue and remain profitable.
The strength of exports has also left open how far the recovery will reach other industries. Domestic consumption and construction remain weak, with high interest rates adding to their difficulties.
Further rate increases could put more strain on construction, with consequences for employment and other industries. Household and corporate debt, along with the housing market, also complicate the next decision.
The governor said inflation needed to return firmly to the central bank's 2% target. The remarks left the timing of any further increase open.
Third-quarter economic growth data are due next week, followed by October inflation figures in early November. Those releases will precede the central bank's final rate meeting of the year in November.
