The Bank of Korea left its main policy rate unchanged at 3.50 percent at its policy meeting held today, in line with the consensus forecast. This leaves the cumulative amount of rate increases made since late 2021 at 275 basis points, with the policy rate at its highest level since 2008.

Since the previous BoK meeting early April, data have shown headline inflation fell from 4.2 percent in March to 3.7 percent in April, closer to the BoK's target level of 2.0 percent. Core CPI inflation, however, has remained relatively steady and high in recent months.

The statement accompanying today's decision notes that domestic growth has continued to slow but officials continue to expect some improvement later in the year, reflecting their assessment that economic conditions in China are likely to strengthen. GDP is now forecast to grow by 1.4 percent, down from the forecast of 1.6 percent made in February. Officials also expect headline inflation to moderate further and then fluctuate around 3.0 percent over the rest of the year, but they have revised up their forecast for annual core inflation from 3.0 percent to 3.3 percent.

Having left policy rates on hold for the third consecutive meeting, officials are non-committal about whether policy will need to be tightened further in coming months, noting that uncertainties about the policy outlook remain"high". Nevertheless, they advise that they will"maintain a restrictive policy stance for a considerable time" and indicate that further policy tightening may yet be required. Incoming inflation data will likely remain the key factor driving policy decisions in coming months.

The Bank of Korea stood aside at its February and April meetings and held rates unchanged. The bank is once again expected to take no action at its May meeting.

South Korea’s central bank, the Bank of Korea (BoK), announces its monetary policy with regard to interest rates eight times a year. The announcement conveys to the financial markets and investors what, if any, changes in policy might be. The main focus is the target set for the base rate. Policy is framed around keeping the annual rate of inflation as measured by the consumer price index (CPI) at 2 percent over the medium-term.

The Bank of Korea determines interest rate policy at eight meetings during the year. A post-meeting statement is issued after each meeting. The Bank also publishes its Monetary Policy report four times a year and updates economic forecasts twice a year.

Monetary policy goals are to aid and abet solid economic growth along with rising living standards. To achieve these goals, inflation is kept low, stable, and predictable. The Bank has an inflation target at 2 percent over the medium-term. The inflation control target is set by the Bank of Korea in consultation with the government and is reviewed every two years.

The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, few homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the financial markets, while lower interest rates are bullish.