The Bank of Korea has kept its key interest rate steady for the eighth consecutive time. The economic growth forecast has been raised significantly by 0.6 percentage points, buoyed by a semiconductor boom. However, inflation expectations have also increased due to the prolonged conflict in the Middle East.
During its monetary policy meeting on May 28, the Bank of Korea's Monetary Policy Committee decided to maintain the key interest rate at 2.50%. This marks the eighth consecutive freeze, following similar decisions in July, August, October, and November of last year, as well as January, February, and April of this year.
The committee stated, "While inflationary pressures have risen due to the Middle East conflict, growth is expanding more than expected, supported by strong exports. However, risks to financial stability persist. Given the high uncertainty surrounding the developments in the Middle East and their potential impacts, we believe it is appropriate to maintain the current interest rate level and further assess the situation's effects on growth and inflation."
The economic growth rate is showing stronger-than-expected performance. On this day, the Bank of Korea adjusted its real GDP growth forecast for this year to 2.6%. The forecast for next year was also raised to 2.1%. Previously, in February, the forecasts were 2.0% for this year and 1.8% for next year.
Earlier this year, South Korea's economy achieved a surprising growth rate that significantly exceeded the Bank of Korea's initial forecast of 0.9%. In the first quarter, the GDP growth rate was 1.7%, driven by the semiconductor sector. With the semiconductor boom, there are now expectations that this year's exports could reach $900 billion.
The ongoing conflict in the Middle East has also influenced this monetary policy decision. In April, the committee noted the high uncertainty stemming from the conflict and decided to maintain the current interest rate while monitoring the situation.
The Middle East conflict is exerting upward pressure on prices. Consequently, the Bank of Korea has revised its consumer price inflation forecast for this year from 2.0% to 2.7%, an increase of 0.5 percentage points. The inflation forecast for next year has also been raised from 2.0% to 2.3%, compared to the February estimates.
The exchange rate is currently hovering around 1,500 won. As of 10:15 a.m. in the Seoul foreign exchange market, the won-dollar exchange rate stands at 1,503.8 won. The ongoing difficulties in ceasefire negotiations in the Middle East have heightened the preference for safe-haven assets. The exchange rate has remained around the 1,500 won level for nine consecutive trading days since May 15.
* This article has been translated by AI.
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