Bank of Korea extends rate pause as inflation cools (updated)

Taeyoung Engineering & Construction

11/01/2024 24:58

(Adds details, analyst comment)
    By Cynthia Kim and Jihoon Lee
       SEOUL, Jan 11 (Reuters) - South Korea's central bank
kept its policy interest rate unchanged for an eighth
consecutive meeting on Thursday as they looked for further
declines in price pressures while staying on alert for any
fallout from a construction firm's debt woes. 
    The Bank of Korea (BOK) held its benchmark rate  KROCRT=ECI 
at 3.50% at a policy review in Seoul, an outcome correctly
forecast by all 38 economists polled by Reuters.
    The BOK, currently at the end of its tightening cycle, is
expected to move cautiously on any rate cuts as they watch the
pace of monetary easing by the U.S. Federal Reserve and any
money market jitters related to the country's ongoing efforts to
restructure debt-ridden companies. 
    Consumer inflation eased for a second month in December to
3.2%, bringing relief to policymakers worried about persistent
price risks after the bank said they plan to keep their
restrictive policy in place for longer. 
    The BOK, which has tightened rates by a total of 300 basis
points in the current cycle, expects headline inflation to ease
to its target of 2% either by the end of this year or early
2025.
    South Korean officials have been bracing for trouble in the
credit market after Taeyoung Engineering & Construction, a
mid-sized builder, said it plans to restructure debt in late
December, which put property debt in the construction sector
back into the spotlight amid high borrowing costs. 
    Analysts expect the BOK to start cutting interest rates in
the third quarter of this year, one quarter later than predicted
in an October poll.    
    "The BOK's hawkish bias has started to soften amid
moderating price pressures," Krystal Tan, an economist at ANZ
said.
    "We think its next rate move will be a cut in the third
quarter of 2024 when we expect domestic inflation to settle
below 3% on a sustained basis and the Fed to embark on an easing
cycle."
    Governor Rhee Chang-yong will hold a news conference at
around 0210 GMT, which will be livestreamed via YouTube. 

 (Reporting by Cynthia Kim and Jihoon Lee
Editing by Shri Navaratnam)
 ((Cynthia.Kim@thomsonreuters.com; 822 3704 5655; Reuters
Messaging: cynthia.kim.thomsonreuters.com@reuters.net))