South Korea extends rate pause, raises growth outlook

By Cynthia Kim and Jihoon Lee

SEOUL (Reuters) – South Korea’s central bank kept its benchmark policy rate steady for an 11th straight meeting on Thursday as the economy showed no signs of slowing while inflation has begun abating only gradually.

The Bank of Korea (BOK) held its key rate at 3.50% at a policy review in Seoul, as expected by all 43 analysts polled by Reuters.

It also raised growth forecast for this year to 2.5% from 2.1% after Asia’s fourth biggest economy grew at its quickest pace in two years in the first quarter.

Economists expect BOK Governor Rhee Chang-yong to maintain his hawkish bias in his news conference set to start at 0210 GMT, as the debate around the timing of the Federal Reserve’s interest rate cuts remain unsettled.

Moreover, while Inflation is coming down, as April headline data showed an easing for the first time in three months to 2.9%, it remains above the BOK’s target rate of 2%.

“We think the bank could sound a bit more hawkish as first quarter GDP surprised on the upside,” Son Bum-ki, an analyst at Barclays said before the rate decision.

“While GDP growth surprised on the upside, we believe the BOK will assess economic momentum into the rest of the year to be soft and note some disinflationary pressures could warrant policy recalibration.”

Governor Rhee recently said the BOK could push back the timing of interest rate cuts amid rising expectations that the Federal Reserve may keep U.S. monetary policy tight for longer than previously expected.

Those views were reflected in the policy poll.

Median forecasts show analysts now see the benchmark interest rate will remain unchanged through the third quarter before a 50 basis-point cut in the fourth quarter, as some pushed back their timing of cuts.

In an April survey, the consensus view predicted 25 basis-point cuts each in the third and fourth quarter.

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