BOK leaves rates unchanged, cites soaring household loans

BOK Governor Rhee Chang-yong bangs the gavel to open a Monetary Policy Committee meeting in Seoul on July 11, 2024. [Photo by Joint Press Corps]

The Bank of Korea (BOK) left the policy rate unchanged at 3.50 percent on Thursday to continue its monetary tightening stance.

Although the country’s inflation is close to the target level of 2 percent, the recent surge in household loans and the U.S. Federal Reserve’s delay in cutting interest rates suggest that South Korea’s central bank will take its time to pivot while waiting for further developments in inflation, finance, and other areas.

The BOK said it would keep the interest rate unchanged during its first monetary policy meeting of the second half of 2024, which was held on Thursday morning. Despite the market’s growing expectations of a rate cut, the central bank’s decision to hold rates in 12 consecutive freezes was driven by the recent uncertainty surrounding housing markets.

A recent rise in household loans, combined with increases in home transactions and prices, explains why the BOK was less willing to cut the policy rate. Market experts warn that any cut in the policy rate risks increasing numbers of people borrowing money to buy houses even as household loans are already overwhelming.

The U.S. Fed’s cautious stance about a rate cut was another factor behind the BOK’s decision. Federal Reserve Chair Jerome Powell said in his monetary policy report to Congress on Tuesday, “What we’d like to see is more data like what we‘ve been seeing recently,” suggesting that the Fed officials need more evidence before lowering interest rates that recent progress in reducing inflation prove sustainable.