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, but also advised that they may consider a rate cut in coming months. 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-May, data have shown a fall in headline inflation from 2.9 percent in April to 2.7 percent in May and 2.4 percent in June, with core inflation moderating further to 2.2 percent. In the statement accompanying today's decision, officials retained their forecast for core inflation to average 2.2 percent this year but noted uncertainties about the inflation outlook and highlighted that"it is necessary to further assess whether inflation will continue its slowing trend". Officials also expressed confidence about the growth outlook and retained their forecast for GDP to expand by 2.5 percent this year.

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". Although they concluded that monetary policy should remain restrictive"for a sufficient period of time", they also noted for the first time this cycle that they are open to considering a loosening in policy settings, advising that they"will examine the timing of a rate cut". Incoming inflation data will likely be the key factor that determines whether such a cut will take place in upcoming meetings.

Reflecting moderation in consumer prices, the Bank of Korea has kept policy unchanged since early 2023. For its July meeting, the bank is expected to hold steady once again.

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.