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. Officials have left this rate on hold since the start of 2023 after tightening policy aggressively over 2022 as part of efforts to return headline inflation to their target level of 2.0 percent.

Since the previous BoK meeting late-November, data have shown a decline in headline inflation, with underlying inflation also falling from 3.0 percent in November to 2.8 percent in December. In the statement accompanying today's decision, officials advise that"inflation is projected to maintain its slowing trend". They also express optimism about the growth outlook, while noting that"restrictive monetary policy stances", both at home and abroad, will exert some effect.

Reflecting their commitment to return inflation to the target level, officials concluded that it remains appropriate to leave policy rates on hold and that their policy stance should remain"restrictive" until they are satisfied that the target will be met. This suggests officials see no case for tightening policy further for now, but that they also are in no hurry to start unwinding the rate increases delivered in 2022.

The Bank of Korea has consistently kept policy unchanged, for its last seven meetings. For its January meeting, no change is once again the expectation. Consumer prices have been slowing and well behaved, at 3.2 percent overall and 2.8 percent for the core.

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.