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 for the second consecutive month that a rate cut at upcoming meetings may be considered. 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 last month, data have shown a small increase in headline inflation from 2.4 percent in June to 2.6 percent in July, with core inflation steady at 2.2 percent. In the statement accompanying today's decision, officials retained their forecast for core inflation to average 2.2 percent this year and 2.0 percent in 2025 but noted uncertainties about the outlook. Officials also continue to expect moderate economic growth, forecasting GDP to expand by 2.4 percent this year and 2.1 percent next 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". They noted, however, that they now have"greater confidence that inflation will converge on the target level". This, they concluded, will allow them to"examine the proper timing of rate cuts while maintaining a restrictive monetary policy stance". Incoming inflation data will likely be the key factor that determines whether such a cut will take place in upcoming meetings.

The Bank of Korea has kept policy unchanged since early 2023 but did note in its July statement that, given moderation in inflation, a rate cut could be in the offing. For its August meeting, however, no change is expected.

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.