South Korea holds rates steady, investors eye timing of pivot

South Korea’s central bank left interest rates at a 15-year high on Thursday amid signs that the weaker economy is slowing inflation, with investors zeroing in on Governor Rhee Chang-yong’s comments on the timing of a policy pivot later this year.

The Bank of Korea (BOK) held its benchmark interest rate at 3.50% at a policy review in Seoul, keeping it unchanged for a ninth straight meeting as expected by all 38 analysts polled by Reuters.

The BOK kept its economic growth forecast for this year unchanged at 2.1% and inflation at 2.6%, it said along with the rate announcement.

South Korea’s 300 basis points of interest rate hikes have stalled economic growth in Asia’s fourth-largest economy as construction investment took a hit from higher borrowing costs even as exports continued to improve.

In a post-policy news conference, Governor Rhee is expected to join global peers such as the Federal Reserve and the Reserve Bank of Australia in pushing back against any bets on a near-term easing as inflation, while cooling, is still above the central bank’s target of 2%.

In January, Rhee warned markets against rallying on premature expectations for a rate cut and said he sees very little chance of rate cuts for the next six months with inflation still high.

Data released since then showed consumer inflation hit a six-month low of 2.8% in January, still far from the central bank’s target of 2% but easing for a third straight month mostly due to a fall in oil prices.

“With inflation cooling and growth set to struggle, we don’t think cuts are far away,” Gareth Leather, an economist at Capital Economics said in a report after the rate decision.

“With inflation concerns easing, we are expecting the central bank to start sounding more dovish.”

BOK board members have warned acting too soon could trigger a resurgence in price pressures especially due to upside risks from supply-side constraints.

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