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.

The BoK has now left rates on hold for four consecutive meetings, indicating that officials are confident that previous policy tightening will help lower inflation towards its target level of 2.0 percent. Since the previous BoK meeting late May, data have shown headline inflation fell from 3.7 percent in April to 3.3 percent in May and 2.7 percent in June. Core CPI inflation has also moderated in recent months to 3.5 percent in June.

The statement accompanying today's decision notes that the recent fall in inflation partly reflects the base effects of previous increases in global oil prices. Officials expect headline inflation to fall to around 3.0 percent in coming months and then fluctuate around that level for the rest of the year. They have retained their forecast for annual headline inflation to be 3.5 percent in 2023 but have revised up their forecast for annual core inflation from 3.3 percent to 3.5 percent.

The statement also notes that domestic growth has shown signs of picking up from recent weakness, with officials expressing optimism that private consumption and exports will improve further in coming months. They continue to forecast that South Korea's economy will grow 1.4 percent in 2023.

Having left policy rates on hold for the fourth consecutive meeting, officials are non-committal about the policy outlook, noting that policy uncertainty remains"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 last three meetings and held rates unchanged. With both headline and core inflation slowing, to 2.7 and 3.5 percent respectively in June, the bank is expected to once again hold its base rate at 3.50 percent.

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.