South Korea Central Bank to keep Interest Rates Unchanged

South Korea's central bank kept its policy interest rate unchanged for the eighth time in a row on Jan 11, hoping for further price declines while keeping an eye out for any fallout from a construction firm's debt woes. The Bank of Korea (BOK) kept its benchmark rate at 3.50 percent during a policy review in Seoul, as predicted by all 38 economists polled by Reuters.

The BOK, which is nearing the end of its tightening cycle, is expected to proceed with caution on any rate cuts as it monitors the pace of monetary easing by the United States 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 per cent, 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 per cent 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 anticipate that the BOK will begin cutting interest rates in the third quarter of this year, a quarter later than predicted in an October poll.

"The BOK's hawkish bias has started to soften amid moderating price pressures," ANZ economist Krystal Tan 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 per cent on a sustained basis and the Fed to embark on an easing cycle."

At around 0210 GMT, Governor Rhee Chang-yong will hold a press conference, which will be livestreamed on YouTube.