BOK eyes policy shift as inflation shows signs of cooling

Bank of Korea Governor Rhee Chang-yong speaks during a press conference at the central bank headquarters in Seoul, Thursday. Yonhap

The Bank of Korea (BOK) will consider lowering the key interest rate at an appropriate time, underpinned by tempered inflation, the country’s top monetary policymaker said, Thursday, in a significant dovish shift in tone suggesting an end to the 12 consecutive rate freezes over the past 18 months. He cautioned against expectations of an imminent rate cut. The central bank kept the key rate unchanged at 3.5 percent. 

Chief among the risk factors in easing is the pace of household debt growth, a major financial stability consideration tied almost exclusively to the most interest-sensitive 커뮤니티 spending, according to Bank of Korea Governor Rhee Chang-yong. Also coming into play to a greater extent are the country’s growth profile and currency value.

The BOK easing preceding the U.S. Federal Reserve (Fed) is not a possibility, in his view, a stance reflective of plunging value of the Korean won feared to crash further only to disturb months of stabilizing inflation dynamics.

Two of six monetary policy committee members were open to the possibility of easing in the next three months, he added, a forward guidance on the three-month horizon.

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