The Bank of Korea left its main policy rate on hold at 2.75 percent at its policy meeting held today. This rate has been cut in three of the last five meetings as officials seek to ease policy from restrictive levels in place since early 2023 as part of efforts to return headline inflation to their target level of 2.0 percent.

Since the previous BoK meeting in February, data have shown headline inflation fall from 2.2 percent in January to 2.1 percent in February before increasing back to 2.2 percent in March, with core inflation also little changed at 2.1 percent in March. Growth in both exports and industrial production have recovered from weakness in January, but the data pre-dates the escalation in global trade tensions and market volatility since the start of April.

In the statement accompanying today's decision, officials expressed confidence that inflation will remain stable and close to their target level. Officials have also retained their their forecast for GDP growth to slow to around 1.5 percent this year. Officials noted, however, that uncertainty about the outlook has increased, largely reflecting global trade tensions. In particular, they noted that heightened exchange rate volatility could have an impact on domestic inflation and financial stability.

Reflecting these factors, officials decided today that no further policy easing is warranted for now. They indicated, however, that additional policy rate cuts will be considered once they have a clearer understanding of the likely impact of recent developments.

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.