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 mid-April, data have shown a small decline in core inflation from 2.42 percent in March to 2.24 percent in April. In the statement accompanying today's decision, officials note that"upward pressures on prices could increase due to an improvement in economic growth" but retained their forecast for core inflation to average 2.2 percent this year. Officials also noted that the stronger-than-expected improvement in economic conditions seen in recent months had prompted them to revise their forecast for GDP growth this year up from 2.1 percent to 2.5 percent.

Officials reaffirmed that their priority is"to conduct monetary policy in order to stabilize consumer price inflation at the target level over the medium-term horizon". Nevertheless, they again warned that"it is premature to be confident that inflation will converge on the target level", concluding that this warrants maintaining a restrictive monetary policy stance"until such confidence is established". This suggests that officials' bias will remain in favour of keeping rates on hold in upcoming meetings.

Reflecting moderation in consumer prices, the Bank of Korea has kept policy unchanged since early 2023. No change is expected for 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.