Bank of Korea Governor Lee Chang-yong chairs a meeting of the Monetary Policy Committee at the bank in central Seoul, April 11. Yonhap
The U.S. Federal Reserve's rate pause this month may give relief to Korea's central bank, which is widely expected to stand pat again on its rate level next month amid concerns over an economic slowdown and rising household debt.
But the Fed's possible rate hikes down the road could put the Bank of Korea (BOK) in a quandary over the fallout from a high rate gap between the two countries.
On Oct. 19, the BOK is widely predicted to leave the rate, which currently stands at 3.5 percent, unchanged, the sixth straight freeze in the face of a murky growth outlook and moderating inflation.
The freezes would come after the BOK delivered seven consecutive hikes in borrowing costs since April last year.
South Korea has been dogged by slumping exports and sluggish consumer spending. In August, its exports fell 8.4 percent year-on-year, marking the 11th consecutive month of decline.
Weak global demand, led by China's slowing economy, and a delay in the recovery of the IT sector are blamed for the slump in outbound shipments.
Domestic consumption has also been in the doldrums amid high interest rates and consumer inflation.
At the August meeting, the central bank maintained its growth outlook for this year at 1.4 percent, unchanged from its May forecast, but cut next year's to 2.2 percent from 2.3 percent, and inflation outlooks were unchanged.
Korea's inflation has eased since peaking at a 24-year high of 6.3 percent in July 2022.
Consumer prices increased at a faster-than-expected pace of 3.4 percent in August due to rising prices of farm goods and oil products, accelerating from the 2.3 percent increase in July.
It was the highest year-on-year rise since the 3.7 percent growth tallied in April and is still far higher than the central bank's medium target of 2 percent.
The bank has said inflation may slow next year, but higher oil prices may put upward pressure on consumer prices.
The BOK is also paying keen attention to rising household debt.
Household loans extended by banks in Korea rose by the sharpest in over two years in August on increased demand.
Banks' outstanding household loans rose 6.9 trillion won from a month earlier, the largest increase since July 2021, when they rose by 9.7 trillion won.
The August tally also marks the fifth consecutive month-on-month rise.
The U.S. Federal Reserve has signaled borrowing costs, currently standing at between 5.25 percent and 5.50 percent, may rise by as much as a quarter percentage point by the end of the year, which could trigger capital flight from Korea and further weaken the local currency. (Yonhap)
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